Bombay High Court
Lallubhai Amichand Ltd vs Sunil Jagmohandas Shah on 1 July, 2025
Author: B. P. Colabawalla
Bench: B. P. Colabawalla
2025:BHC-OS:9841-DB
appl30581-23.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
TRUSHA
TUSHAR ORDINARY ORIGINAL CIVIL JURISDICTION
MOHITE
Digitally signed by
TRUSHA TUSHAR
MOHITE
Date: 2025.07.02
APPEAL (L) NO.30581 OF 2023
14:54:52 +0530
WITH
INTERIM APPLICATION (L) NO.32114 OF 2023
Lallubhai Amichand Limited ]
A company incorporated under the Companies ]
Act, 1913, having its registered office at 48/50, ]
Kansara Chawl, Kalbadevi Road, Mumbai ]
400 002 and its administrative office at 225/27, ]
Dun Apartments Compound, J. Dadaji Road, ]
Tardeo, Mumbai 400 007. ] Appellants
(Orig. Defendant No.4)
Versus
1 Sunil Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business,, having address at 605/606, ]
th
Dun Apartment, 6 Floor, 225/27, J. ]
Dadajee Road, Tardeo, Mumbai 400 007. ]
2 Shivang Sunil Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, residing at 2201, Elite Crest, J. ]
Dadajee Road, Near Bhatia Hospital ]
Mumbai 400 007. ]
3 Dhiren Rameshchandra Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at 2301, 23rd ]
Floor, Indiabulls Sky, Senapati Bapat ]
Marg, Parel, Mumbai 400 012. ]
4 Saloni Shah ]
Adult, Indian Inhabitant, Occupation: ]
Advocate, having address at C-1114, ]
Golfscape Apartments, Sion Trombay Road, ]
Chembur (E), Mumbai 400 071. ]
5 Paresh Rameshchandra Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at 502, Videocon ]
House, Manav Mandir Road, Walkeshwar, ]
Mumbai 400 006.
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6 Bombay Conductors and Electricals Ltd., ]
A company incorporated under the ]
Companies Act, 1956 having its registered ]
office No. Plot No.75/4 of Village Ghodsar ]
Near Jasoda Nagar City, Ahmedabad ]
Gujarat 382 445 and its administrative ]
office at 225/27, Dun Apartments Compound]
J. Dadaji Road, Tardeo, Mumbai 400 007. ]
7 Modem Metal Products Ltd., ]
A company incorporated under the ]
Companies Act, 1956 having its registered ]
address Plot No.175/4, Village Ghodsar, ]
Near GIDC, Vatva Industrial Estate, ]
Ahmedabad, Gujarat and its administrative]
office at 225/27, Dun Apartments Compound]
J. Dadajee Road, Tardeo, Mumbai 400 007. ]
8 Elite Housing Developers LLP ]
A limited Liability Partnership, registered ]
under the provisions of the Limited ]
Liability Partnership Act, 2008, having its ]
registered office at 2-17, Dattatray Building]
Tukaram, Javji, Mumbai 400 007 and its ]
administrative office at 225/27, Dun ]
Apartments Compound, J. Dadajee Road, ]
Tardeo, Mumbai 400 007. ]
9 Ketan Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at A/33, Heera ]
Panna Apartment, 3rd Floor, Near Bhulabhai]
Desai Road, Haji Ali, Mumbai 400 026. ]
10 Harshad Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at 2/64, Nanik ]
Niwas, 91, Bhulabhai Desai Road, ]
Mumbai 400 026. ]
11 Sushila Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at 605/606, ]
th
Dun Apartment, 6 Floor, 225/27, J. ]
Dadajee Road, Tardeo, Mumbai 400 007. ]
12 Indira Rameshchandra Shah ]
Adult, Indian Inhabitant, Occupation: ]
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Housewife, having address at 2301, 23rd ]
Floor, Indiabulls Sky, Senapati Bapat Marg,]
Parel, Mumbai 400 012. ]
13 Jayashree Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at Flat No.1031, ]
H-wing, Raj Arcade; Mahavir Nagar, ]
Kandivali (W), Mumbai 400 067. ]
14 Neela Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at Nikunj ]
Bungalow, Gulmohar Colony, Opp. Malu ]
High School South, Shivaji Nagar, ]
Sangli 416 416. ]
15 Alka Nanukumar Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at Matru ]
Mandir Building, 6th Floor, Opp: Bhatia ]
Hospital, Mumbai 400 007. ]
16 Sangita Atul Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at 205, Dun ]
Apartments, J. Dadajee Road, Tardeo, ]
Mumbai 400 007. ]
17 Rajeshri Sanjiv Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at 1102, Dun ]
Apartments, J. Dadajee Road, Tardeo, ]
Mumbai 400 007. ]
18 Jasmina Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, Mani Pushp Society, Bungalow ]
No.7, Near Tulip Bungalow, Surdhara ]
Circle, Ahmedabad 380 054. ] .. Respondents
WITH
APPEAL (L) NO.32111 OF 2023
WITH
INTERIM APPLICATION (L) NO.32112 OF 2023
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Lallubhai Amichand Limited ]
A company incorporated under the Companies ]
Act, 1913, having its registered office at 48/50, ]
Kansara Chawl, Kalbadevi Road, Mumbai ]
400 002 and its administrative office at 225/27, ]
Dun Apartments Compound, J. Dadaji Road, ]
Tardeo, Mumbai 400 007. ] Appellants
(Orig. Defendant No.4)
Versus
1 Sunil Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business,, having address at 605/606, ]
th
Dun Apartment, 6 Floor, 225/27, J. ]
Dadajee Road, Tardeo, Mumbai 400 007. ]
2 Shivang Sunil Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, residing at 2201, Elite Crest, J. ]
Dadajee Road, Near Bhatia Hospital ]
Mumbai 400 007. ]
3 Dhiren Rameshchandra Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at 2301, 23rd ]
Floor, Indiabulls Sky, Senapati Bapat ]
Marg, Parel, Mumbai 400 012. ]
4 Saloni Shah ]
Adult, Indian Inhabitant, Occupation: ]
Advocate, having address at C-1114, ]
Golfscape Apartments, Sion Trombay Road, ]
Chembur (E), Mumbai 400 071. ]
5 Paresh Rameshchandra Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at 502, Videocon ]
House, Manav Mandir Road, Walkeshwar, ]
Mumbai 400 006. ]
6 Bombay Conductors and Electricals Ltd., ]
A company incorporated under the ]
Companies Act, 1956 having its registered ]
office No. Plot No.75/4 of Village Ghodsar ]
Near Jasoda Nagar City, Ahmedabad ]
Gujarat 382 445 and its administrative ]
office at 225/27, Dun Apartments, J. ]
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Dadaji Road, Tardeo, Mumbai 400 007. ]
7 Modem Metal Products Ltd., ]
A company incorporated under the ]
Companies Act, 1956 having its registered ]
address Plot No.175/4, Village Ghodasar, ]
Near GIDC, Vatva Industrial Estate, ]
Ahmedabad, Gujarat and its administrative]
office at 225/27, Dun Apartments Compound ]
J. Dadajee Road, Tardeo, Mumbai 400 007. ]
8 Elite Housing Developers LLP ]
A limited Liability Partnership, registered ]
under the provisions of the Limited ]
Liability Partnership Act, 2008, having its ]
registered office at 2-17, Dattatray Building]
Tukaram, Javji, Mumbai 400 007 and its ]
administrative office at 225/27, Dun ]
Apartments Compound, J. Dadajee Road, ]
Tardeo, Mumbai 400 007. ]
9 Ketan Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at A/33, Heera ]
Panna Apartment, 3rd Floor, Near Bhulabhai]
Desai Road, Haji Ali, Mumbai 400 026. ]
10 Harshad Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at 2/64, Nanik ]
Niwas, 91, Bhulabhai Desai Road, ]
Mumbai 400 026. ]
11 Sushila Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at 605/606, ]
th
Dun Apartment, 6 Floor, 225/27, J. ]
Dadajee Road, Tardeo, Mumbai 400 007. ]
12 Indira Rameshchandra Shah ]
Adult, Indian Inhabitant, Occupation: ]
rd
Housewife, having address at 2301, 23 ]
Floor, Indiabulls Sky, Senapati Bapat Marg, ]
Parel, Mumbai 400 012. ]
13 Jayashree Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at Flat No.1031, ]
H-wing, Raj Arcade; Mahavir Nagar, ]
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Kandivali (W), Mumbai 400 067. ]
14 Neela Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at Nikunj ]
Bungalow, Gulmohar Colony, Opp. Malu ]
High School South, Shivaji Nagar, ]
Sangli 416 416. ]
15 Alka Nanukumar Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at Matru ]
Mandir Building, 6th Floor, Opp: Bhatia ]
Hospital, Mumbai 400 007. ]
16 Sangita Atul Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at 205, Dun ]
Apartments, J. Dadajee Road, Tardeo, ]
Mumbai 400 007. ]
17 Rajeshri Sanjiv Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at 1102, Dun ]
Apartments, J. Dadajee Road, Tardeo, ]
Mumbai 400 007. ]
18 Jasmina Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, Mani Pushp Society, Bungalow ]
No.7, Near Tulip Bungalow, Surdhara ]
Circle, Ahmedabad 380 054. ] .. Respondents
WITH
APPEAL (L) NO.33445 OF 2023
WITH
INTERIM APPLICATION (L) NO.22820 OF 2023
1 Indira Rameshchandra Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, residing at 2301, 23rd Floor, ]
Indiabulls Sky, Senapati Bapat Marg, ]
Parel, Mumbai 400 012. ] .. Appellant No.1/
Ori. Def. No.11
2 Dhiren Rameshchandra Shah ]
Adult Indian Inhabitant, Occupation: ]
Business, residing at 2301, 23rd Floor, ]
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Indiabulls Sky, Senapati Bapat Marg, ]
Parel, Mumbai 400 012. ] .. Appellant No.2/
Ori. Def. No.1
3 Paresh Rameshchandra Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at 502, Videocon ]
House, Manav Mandir Road, Walkeshwar, ]
Mumbai 400 006. ] .. Appellant No.3/
Ori. Def. No.3.
4 Rajeshri Sanjiv Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at 1102, Dun ]
Apartments, J. Dadajee Road, Tardeo, ]
Mumbai 400 007. ] .. Appellant No.4/
Ori. Def. No.16
5 Jasmina Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, Mani Pushp Society, Bungalow ]
No.7, Near Tulip Bungalow, Surdhara ]
Circle, Ahmedabad 380 054. ] .. Appellant No.5/
Ori. Def. No.17
Versus
1 Sunil Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business,, having address at 605/606, ]
Dun Apartment, 6th Floor, 225/27, J. ]
Dadajee Road, Tardeo, Mumbai 400 007. ] .. Respondent No.1/
Ori. Plaintiff No.1.
2 Shivang Sunil Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, residing at 2201, Elite Crest, J. ]
Dadajee Road, Near Bhatia Hospital ]
Mumbai 400 007. ] .. Respondent No.2/
Ori. Plaintiff No.2.
3 Saloni Shah ]
Adult, Indian Inhabitant, Occupation: ]
Advocate, having address at C-1114, ]
Golfscape Apartments, Sion Trombay Road,]
Chembur (E), Mumbai 400 071. ] .. Respondent No.3/
Ori. Defendant No.2.
4 Lallubhai Amichand Limited ]
A Company incorporated under the ]
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Companies Act, 1913, having its registered ]
office at 48/50, Kansara Chawl, Kalbadevi ]
Road, Mumbai 400 002 and its ]
administrative office at 225/27, Dun ]
Apartments Compound, J. Dadaji Road, ]
Mumbai 400 007. ] .. Respondent No/4/
Ori. Defendant No.4.
5 Bombay Conductors and Electricals Ltd., ]
A company incorporated under the ]
Companies Act, 1956 having its registered ]
office No. Plot No.75/4 of Village Ghodsar ]
Near Jasoda Nagar City, Ahmedabad ]
Gujarat 382 445 and its administrative ]
office at 225/27, Dun Apartments, J. ]
Dadaji Road, Tardeo, Mumbai 400 007. ] .. Respondent No.5/
Ori. Defendant No.5
6 Modem Metal Products Ltd., ]
A company incorporated under the ]
Companies Act, 1956 having its registered ]
address Plot No.175/4, Village Ghodasar, ]
Near GIDC, Vatva Industrial Estate, ]
Ahmedabad, Gujarat and its administrative]
office at 225/27, Dun Apartments Compound ]
J. Dadajee Road, Tardeo, Mumbai 400 007.] .. Respondent No.6/
Ori. Defendant No.6
7 Elite Housing Developers LLP ]
A limited Liability Partnership, registered ]
under the provisions of the Limited ]
Liability Partnership Act, 2008, having its ]
registered office at 2-17, Dattatray Building]
Tukaram, Javji, Mumbai 400 007 and its ]
administrative office at 225/27, Dun ]
Apartments Compound, J. Dadajee Road, ]
Tardeo, Mumbai 400 007. ] .. Respondent No.7/
Ori. Defendant No.7
8 Ketan Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at A/33, Heera ]
Panna Apartment, 3rd Floor, Near Bhulabhai]
Desai Road, Haji Ali, Mumbai 400 026. ] .. Respondent No.8/
Ori. Defendant No.8
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9 Harshad Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Business, having address at 2/64, Nanik ]
Niwas, 91, Bhulabhai Desai Road, ]
Mumbai 400 026. ] .. Respondent No.9/
Ori. Defendant No.9
10 Sushila Jagmohandas Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at 605/606, ]
Dun Apartment, 6th Floor, 225/27, J. ]
Dadajee Road, Tardeo, Mumbai 400 007. ] .. Respondent No.10/
Ori. Defendant No.10
11 Jayashree Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at Flat No.1031, ]
H-wing, Raj Arcade; Mahavir Nagar, ]
Kandivali (W), Mumbai 400 067. ] .. Respondent No.11/
Ori. Defendant No.12
12 Neela Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at Nikunj ]
Bungalow, Gulmohar Colony, Opp. Malu ]
High School South, Shivaji Nagar, ]
Sangli 416 416. ] .. Respondent No.12/
Ori. Defendant No.13
13 Alka Nanukumar Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at Matru ]
Mandir Building, 6th Floor, Opp: Bhatia ]
Hospital, Mumbai 400 007. ] .. Respondent No.13/
Ori. Defendant No.14
16 Sangita Atul Shah ]
Adult, Indian Inhabitant, Occupation: ]
Housewife, having address at 205, Dun ]
Apartments, J. Dadajee Road, Tardeo, ]
Mumbai 400 007. ] .. Respondent No.14/
Ori. Defendant No.15
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Mr. Zal Andhyarujina, Senior Counsel a/w Maithili Parikh, Raghav
Gupta, Siddharth Kate i/b Wadia Ghandy & Co., Advocates for the
Appellant in APP(L)/30581/2023 and APP(L)/32111/2023 and for
Respondent No.4 in Appeal (L) No.32445 of 2023
Mr.Karl Tamboly a/w Mr.Siddharth Bafna, Ms.Rinu Kallan, Ms.Ruchi
Kakkad and Mr.Pulkit Tiwari i/b Integrum Legal, Advocates for the
Respondent Nos.3, 4, 5, 12, 17 and 18 in Appeal (L) No.30581/2023 and
Appeal (L) No.32111 of 2023
Mr.Karl Tamboly a/w Mr.Siddharth Bafna, Ms.Rinu Kallan, Ms.Ruchi
Kakkad and Mr.Pulkit Tiwari i/b Integrum Legal, Advocates for the
Appellants in APP(L)/33445/2023.
Mr.Sharan Jagtiani, Senior Counsel a/w Mr.Rohaan Cama, Mr.Prakhar
Parekh, Ms.anuja Bhansali, Mr.Tejas Popat, Mr.Abhyarthana Singh i/b
M/s.Rashmikant & Partners, Advocates for the Respondent Nos.1 and 2
in all matters.
--------------------------------------------------------------------------------------
CORAM: B. P. COLABAWALLA &
FIRDOSH P. POONIWALLA, JJ.
RESERVED ON: MARCH 18, 2025
PRONOUNCED ON: JULY 1, 2025
JUDGEMENT:
(Per FIRDOSH P. POONIWALLA, J.)
1. This judgement disposes of the following three Appeals:
a) Appeal (L) No.30581 of 2023 which has been filed by Lallubhai
Amichand Limited impugning the Order dated 25th October 2023 passed by
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appl30581-23.docthe Learned Single Judge of this Court in Interim Application (L) No.22820 of
2023 in Suit (L) No.22818 of 2023 granting ad-interim reliefs.
b) Appeal (L) No.32111 of 2023 has also been filed by Lallubhai Amichand
Limited impugning the Order dated 10th November 2023 passed by the
Learned Single Judge of this Court in an Application for speaking to the
minutes of the Order dated 25th October 2023.
c) Appeal (L) No.33445 of 2023 filed by Indira Shah (Original Defendant
No.11), Dhiren Shah (Original Defendant No.1), Paresh Shah (Original
Defendant No.3), Rajeshri Shah (Original Defendant No.16) and Jasmin Shah
(Original Defendant No.17) impugning both the aforesaid Orders dated 25 th
October 2023 and 10th November 2023.
2. By consent of all the parties, we have finally heard all these
Appeals.
3. For the sake of convenience, in this judgement, the parties will be
referred to as per their nomenclature in the Suit.
4. It would be appropriate to set out the facts as pleaded in the
Plaint, which are as follows:
(a) Plaintiff No.1 is one of the three sons of Jagmohandas Shah. As a
member of the Jagmohandas Shah family, Plaintiff No.1 has been a
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appl30581-23.docdirector of Defendant No.4 since 2nd June, 1984. Plaintiff No.2 is the
son of Plaintiff No.1. Since 2005-06, Plaintiff No.2 has been involved in
the family business.
(b) Defendant Nos. 1 and 3 are the only surviving sons of Rameshchandra
Shah, who was the brother of Jagmohandas Shah. Defendant Nos.1 and
3 also represent their respective immediate family members, trust and
HUFs. As members of the family of Rameshchandra Shah, Defendant
Nos. 1 and 3 have been directors of Defendant No.4 since 1 st January,
1984 and 1st January, 1990 respectively. Each of them held 17.16%
shares in Defendant No.4. Defendant No.2 is the daughter of late
Sanjiv Shah (2nd among three sons of Rameshchandra Shah) and was
appointed as a director of Defendant No.4 on 21 st July, 2022, upon the
demise of Sanjiv Shah.
(c) Defendant No.4 is a Company. Defendant No.4 was incorporated in
1948. Defendant No.4 was originally founded as a partnership firm in
1911 by the father and uncle of Rameshchandra Shah and
Jagmohandas Shah. Defendant No.5 is a wholly owned subsidiary of
Defendant No.4 and was incorporated on 10 th February, 1964.
Defendant No.6 is also a wholly owned subsidiary of Defendant No.4.
Defendant No.7 is a Limited Liability Partnership with Plaintiff No.1,
Defendant Nos. 1 and 3 and Rajashri Sanjiv Shah as its partners.
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(d) Defendant Nos. 8 and 9 are the brothers of Plaintiff No.1. They are
members of the Jagmohandas Shah branch of the family and have
exited the business of the family. Defendant No.10 is the wife of
Jagmohandas Shah. Defendant No.11 is the wife of Rameshchandra
Shah. Defendant Nos. 10 and 11 are shareholders in Defendant Nos. 4
and 6. Defendant Nos. 12 and 13 are members of Jagmohandas Shah
branch of the family and have no representation in the business of the
Lallubhai Amichand Group (Defendant Nos. 4 to 7). Defendant Nos. 14
and 15 are members of Rameshchandra Shah branch of the family and
have no representation in the business of the Lallubhai Amichand
Group. Defendant No.16 is the wife of late Sanjiv R. Shah. Defendant
No.17 is the daughter of late Hansaben Shah (the late sister of
Rameshchandra and Jagmohandas Shah) and Ghanshyam Shah and
has no representation in the business of the Lallubhai Amichand
Group.
(e) Defendant No. 4 (which is now a company) was originally established in
1911 as a partnership firm between four partners: (i) Gokaldas
Hakamchand Shah (“Gokaldas”); (ii) Vithaldas Hakamchand Shah
(“Vithaldas”); (iii) Lallubhai Hakamchand Shah (“Lallubhai”) and (iv)
Amichand. Gokaldas was Plaintiff No.1’s grandfather and Vithaldas
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was Gokaldas’s real brother and, therefore, Plaintiff No. 1’s granduncle.
At that time, Lallubhai Amichand was engaged in the business of
manufacturing, trading, and dealing in metals and household
kitchenware. Vithhaldas was heirless. Gokaldas had two sons,
Rameshchandra Shah (“Rameshchandra”) and Jagmohandas Shah
(“Jagmohandas”) and a daughter, Hansaben Shah.
(f) In 1911, the partnership firm, Lallubhai Amichand, purchased “the Dun
Aluminium Factory” in Tardeo from a Parsi gentleman. Due to hard
work and efforts of the partners, the factory expanded from having
initially eight workers to five hundred workers.
(g) Around 1936, Lallubhai Amichand started exporting aluminium goods
and earned a good name abroad.
(h) In the interregnum, Lallubhai exited the firm due to some losses that he
had incurred. Post his exit, the firm Lallubhai Amichand principally
had three family groups i.e., Gokaldas Hakamchand Shah; Vithaldas
Hakamchand Shah and Amichand.
(i) In 1943, Gokaldas passed away prematurely leaving behind his widow
Bai Mangubai and their two minor sons, Jagmohandas and
Rameshchandra. Plaintiff No. 1 is the son of Jagmohandas. Defendant
Nos. 1 to 3 are the descendants of Rameshchandra.
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(j) After the death of Gokaldas, disputes arose between Amichand and
Vithaldas. Amichand insisted that Gokaldas’s share in the partnership
should be divided amongst them. However, Vithaldas resisted this and
wanted his brother’s share in the partnership to devolve upon his
brother’s widow and minor children. This led to the filing of Suit No. 37
of 1948 before this Court. Being a partnership business, a Court
Receiver was appointed. After some litigation, coupled with great
perseverance, Vithaldas eventually raised finance to purchase the firm
Lallubhai Amichand together with its immovable and leasehold
properties from the Court Receiver appointed in the Suit. While doing
so, his primary intention was to ensure that his late brother’s widow
and children continued to enjoy the benefit of the partnership firm,
which Gokaldas had worked hard to grow. Vithaldas wanted to ensure
that his late brother’s family be looked after, which culminated into
Vithaldas and his wife entering into oral understandings with Bai
Mangubai who was then representing the Gokaldas estate and the
interest of her two minor children i.e. Jagmohandas and
Rameshchandra. As a result, Vithaldas continued the business of the
partnership.
(k) This foundational basis / oral understanding, namely, that this was a
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family business and the family of the deceased Gokaldas would not be
short changed by opportunist short-sighted temptation, constituted the
genesis of, and recognized, the right of Bai Mangubai and her two sons
to be the promoters and directors of the companies which were to be
incorporated to take over the partnership firm, Lallubhai Amichand,
and its assets.
(l) On 16th December 1948, Lallubhai Amichand ceased to exist as a
partnership and was incorporated as a company under the provisions of
the Companies Act, 1913. It is on the above foundational basis / oral
understanding that Defendant No. 4 was incorporated and the principal
shareholding groups in this company were the families of Gokaldas and
Vithaldas. This is also evident from the constitutional / incorporation
documents of Defendant No. 4. In this context, the Plaintiffs have
referred to Clause 6 of the Articles of Association of Defendant No.4
and Clause Nos.1 and 2 of the Memorandum of Association of
Defendant No. 4.
(m) Historically, the family business was also carried on in two other family
entities namely, Rameshchandra Ltd. and Metal Rolling Works
Limited, as a part and parcel of the family business. These two
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companies, in fact, as their objects and Articles of Association would
disclose, were in the same identical business of Defendant No 4 and had
the very same first directors.
(n) Hence, Defendant No. 4 and the above companies, from their inception,
had been family companies established expressly to be nothing but a
quasi-partnership. Originally, the foundational basis/oral
understanding involved the family branches of Gokaldas and Vithaldas.
Gokaldas’ premature demise necessitated that the oral understanding
(at that time between Bai Mangubai and Vithaldas) ensured the
prosperity and well-being of his widow and two sons, Rameshchandra
and Jagmohandas. At the same time, considering the seniority of
Vithaldas and the efforts that he had taken to ensure the well-being of
his brother’s family, he was the permanent Managing Director of
Defendant No. 4 and the above companies. He was however, heirless,
and, therefore, on his demise in 1982, his share devolved upon
Rameshchandra and Jagmohandas.
(o) Once Rameshchandra and Jagmohandas became adults, both joined
Defendant No. 4 as Directors. Jagmohandas looked after the sales of
Defendant No. 4. Rameshchandra, who joined after a few years, looked
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after the manufacturing at the factory. At that time, late Mangubai’s
share was transferred to both the brothers, Rameshchandra and
Jagmohandas, and they eventually took over the business of Defendant
No.4.
(p) In the 1970s, the Dun aluminium factory was shifted from Tardeo to
Mankhurd. After shifting the factory, the Tardeo land was sold to one
Mr. N.L. Mehta, subject to a few conditions wherein Defendant No. 4
would retain an office space and also own certain flats, rooms and
shops. The construction of the building started in 1979 and was
completed in 1983 or thereabouts.
(q) In 1972, the two branches of the family group of Vithaldas and Gokaldas
established a further company, Alco Metal Extrusion Limited, that was
engaged in the identical business of trading of metal extrusions / bars.
The first subscribers of Alco were Vithaldas, Rameshchandra and
Jagmohandas and their respective family members. Accordingly, the
family business continued in one more entity.
(r) In 1984, Vithaldas passed away. In 1984 and 1988, Jagmohandas and
Rameshchandra, respectively, passed away. Hence, for more than 40-
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50 years, the ancestors of Plaintiff No. 1 and Defendant Nos.1 and 3 and
their respective fathers carried out the business of Lallubhai Amichand.
It was all along run as a quasi-partnership between the two-family
groups i.e. Gokaldas and Vithaldas and thereafter, between
Jagmohandas and Rameshchandra’s families. This was in consonance
with and pursuant to the foundational basis / oral understanding
within the families.
(s) The forefathers managing the affairs of the Lallubhai Amichand Group,
from time to time, purchased various properties, as set out in paragraph
23 of the Plaint.
(t) On 1st January 1984, Defendant No.1 i.e. Dhiren Rameshchandra Shah
was appointed as a Director of Defendant No.4. Immediately
thereafter, on 2nd June 1984 and 5th July 1984, Plaintiff No.1 and
Defendant No. 9 respectively, were appointed as directors of Defendant
No.4. On 1 January 1990, Defendant No.3 was appointed as a Director
of Defendant No.4. On 5th June 2002, Sanjiv and Defendant No. 8, i.e.
Ketan were appointed as Directors of Defendant No.4.
(u) As a result, the two branches of the Shah family, i.e. the
Rameshchandra branch and the Jagmohandas branch, had equal
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representation in the interests, control and management of Defendant
No.4 and its Group entities This was in consonance with and pursuant
to the foundational basis / oral understanding within the families.
(v) The salient features of the aforesaid foundational basis / oral
understanding between the families, which comprised Defendant No.4,
can broadly be summarized as under:
i) members of the family had a right to participate in the
management of the family business, through Defendant No.4
and its group companies. In line with this, the family members
recognized and respected the different roles being played by
individual family members in these entities.
ii) members of the family had a right in the properties
owned by the family members and/or through the family-
owned entities;
iii) members of the family conducted themselves in a
manner and were treated by each other in a manner which
would ensure overall equality vis-a-vis assets held by them as
well as in relation to their management control rights in the
family business.
(w) It was considered expedient to entrust different business activities to
different persons/groups; give such persons/groups, running the
respective businesses, functional autonomy and authority in decision
making in different family businesses which were carried out through
different entities which were owned by the Lallubhai Amichand Group.
These were, namely: (i) Defendant No.4; (ii) Rameshchandra Ltd., (ii)
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Metal Rolling; and (iii) Alco.
(x) Accordingly, the broad division of roles between the members of the
Rameshchandra and Jagmohandas families in relation to the carrying
out of the family business through the aforesaid entities was as follows:
i) Alco was trading in metal extrusions / bars.
Rameshchandra Ltd. was also engaged in a similar
trading business. These were managed by late Sanjiv i.e.
Defendant No. 2’s father.
ii) Metal Rolling was engaged in the business of
converting metal ingots to rods. This was primarily
looked after by Defendant No.1.
iii) Defendant No.3 was managing marketing and
sales of the Elite Cookware brand which was being done
through Defendant No.4. This brand was used for
various products such as non-stick utensils, pressure
cookers, etc. The manufacturing of this was looked after
by Defendant No.1.
iv) The aluminium cookware export business of
Defendant No.4 was being run exclusively by Plaintiff
No. 1. Defendant No.1 was also assisting in the export
business prior to the shifting of the factory from Mankurd
to Ahmedabad (which took place in 2002). Post the shift,
it is Plaintiff No.1 who has been exclusively managing
the export business of Defendant No. 4.
(y) The business of the Lallubhai Amichand Group, and interests of the
families in the various properties held through various entities, was and
is admittedly, in the nature of a quasi-partnership with equivalent
rights in the properties owned by the Lallubhai Amichand Group.
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(z) In or about 2002, the factory producing aluminum and stainless steel
utensils for exports division at Mankhurd was closed due to labour
unrest. The factory was moved to Ahmedabad (where there was a closed
plant owned by Defendant No.5 that used to manufacture conductors).
Since none of the other brothers wanted to continue to look after the
Exports Division and as profits at the time were lower in exports as
compared to other divisions, Plaintiff No. 1 not only continued to look
after the Export Division but did it exclusively. Between 2002 to 2007,
Plaintiff No. 1 took steps to set up the factory at Ahmedabad. From
2002 onwards and until April 2023, Plaintiff No.1 was travelling to
Ahmedabad for upto 15 days a month to ensure that the Export Division
is on effortlessly. Plaintiff No. 1 independently took steps to bring in
clients and set up the entire business in Export Division. The record of
Defendant No. 4 will reflect that Plaintiff No.1 was and is the sole point
of contact/communication for the Export Division. He was
singlehandedly running this division and had full authority to manage
the same. Plaintiff No.1 has extensively travelled overseas since 1992
solely representing the Export Division and conducting business in this
division.
(aa) Ketan and Harshad i.e., Plaintiff No. 1’s brothers and members of the
Jagmohandas branch, resigned from Defendant No.4 on 1 st October
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2007. Prior to their resignation, Harshad and Ketan had incorporated
and started their own cookware business sometime in June 2007
through a company known as Declion Cookware Private Limited.
(bb) The exit of Ketan and Harshad created an imbalance between the two
families in the representation in the family businesses. It is in this
background that the Rameshchandra branch and the Jagmohandas
branch decided that it was necessary to arrive at a further family
understanding / arrangement which would take forward the oral
understandings referred to above, avoid the potential for any friction or
strife or any misunderstanding that might arise from the imbalance
created by the exit of Ketan and Harshad, and preserve and continue
the manner in which the respective family members were running their
respective businesses with functional autonomy. This would, interalia,
also record their entitlements in the ancestral properties owned by the
Lallubhai Amichand Group and would also address the manner in
which the two branches of the Shah family would continue their
businesses. It is to achieve this that the family arrangement /
understanding reflected in the Memorandum of Understanding
(‘MOU’) dated 3rd September 2010 was arrived at between the parties.
(cc) Whilst the terms of this family arrangement were being negotiated,
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Plaintiff No. 1 was advised that with the exit of his two brothers, namely
Defendant Nos. 8 and 9, Plaintiff No. 1 (Jagmohandas branch) would
for the first time be in a numerical shareholding minority. Until then,
apart from the fact that Defendant No. 4 was run on the foundational
basis / oral understanding of equality between the two-family groups,
technically, there was also equality in shareholding. The negotiations
between the family members were with the intervention and/or
involvement of their Solicitor, Mr. Mahendra Ghelani. Initially, it was
contemplated that a Minority Protection Agreement would take care of
this imbalance. Accordingly, a draft thereof was prepared. The same
was discussed with Defendant Nos. 1, 3 and late Sanjiv. However, they
insisted that something this fundamental need not be reduced to
writing since the very basis of the company had always been the
foundational basis / oral understanding which respected the equality of
the family groups. They assured Plaintiff No.1 that his pre-existing
position in Defendant No. 4 would remain undisturbed irrespective of
the reduction of the shareholding of the Jagmohandas branch. It is on
account of this assurance and confirmation of a long-standing
foundational basis/oral understanding within the family, which had
been acted upon for decades, that the parties arrived at the
arrangement /understanding which finds mention in the MOU dated
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3rd September 2010.
(dd) In paragraph 39 of the Plaint, the longstanding foundational basis /
oral understandings as narrated above are broadly summarized; the
MOU with its express and implied rights and obligations which
respected the pre-existing status of the family members are collectively
referred to as the “Family Arrangement”.
(ee) The entire object of the Family Arrangement was that each of the
branches of the Shah family would be perpetually entitled to continue
to participate in the management of the Defendant No. 4 and each of
the divisions were to be run by the respective members. The
entitlement of the respective members of the family to run their
respective divisions, was therefore, one of the essential facets of the
Family Arrangement. The Family Arrangement was so structured to
ensure that some of the family members do not use their shareholding
majority to interfere with or defeat the rights of each group of the
family.
(ff) Pursuant to the Family Arrangement, the shareholding in Defendant
No.4 stood as under:
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appl30581-23.docSr. No. Name of Shareholder Shares
(% age)
Jagmohandas Shah branch – 25.98%
1. Sushilaben Shah (Defendant No. 13) (6.66)
2.
Sunil (2064),Sunil’s HUF (260), Sunil J. Shah Trust (300), Sunil (17.16)
Shah Trust (240)
3. Jayshree Shah Trust (1.08)
4. Neela Shah Trust (1.08)
Rameshchandra Shah branch – 72.59%
5. Indiraben Shah (Defendant No. 14) (6.66)
6. Dhiren Shah (2351), Dhiren Shah Trust (153), Dhiren Shah HUF (17.16)
(180), Dhiren Maintenance Trust (160)
7. Rajeshri Sanjiv Shah (2402), Sanjiv Shah Trust (162), Sanjiv Shah (17.16)
HUF (300)
8. Paresh Shah (2334), Paresh Shah Trust (350), Paresh Shah HUF (17.16)
(180)
9. Alka Shah Trust (1.08)
10. Sangita Shah Trust No. 1 (1.08)
11. Sangita Shah Trust No. 2 (0.36)
12. Jasmina Shah (Defendant No. 21) (4.85)
13. Lallubhai Amichand Ltd. Employees Educational Welfare Trust (3)
14. Lallubhai Amichand Ltd. Employees General Welfare Trust (3.3)
15. Bombay Conductors & Electricals Ltd. Employees General Welfare (0.78)
Trust
Total (100)
(gg) Post the Family Arrangement and in implementation thereof, the
Parties undertook the following:
(a) in or about 2011, Defendant No. 7 (ie. Elite Housing Developers
LLP) was formed. Plaintiff No. 1, Defendant Nos.1 and 3 and late
Sanjiv were the founding Partners of Defendant No. 7 and post
the demise of Sanjiv, his wife Rajeshrsi Sanjiv Shah (Defendant
No. 16) was automatically made a partner of Defendant No.7. The
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appl30581-23.docpurpose of incorporating Defendant No.7 was to develop a 22-
storey residential high rise at the Tardeo property which is held
by the Hirabhai Vithaldas Shubh Trust.
(b) Considering the experience Plaintiff No. 2 had gained over the
past 4-5 years, when Defendant No.7 was starting its project Elite
Crest at Tardeo, Plaintiff No.2 was appointed as the Project
Manager. During this time, he worked closely with one Anil
Thacker, who had been the architect of the family for its
businesses for over 20 years.
(c) Alco, Metal Rolling and Rameshchandra Ltd. were merged with
Defendant No.4 as a single entity to be run as a quasi-
partnership. This was achieved by filing appropriate petitions in
this Court by way of a scheme of amalgamation. By an Order
dated 20th July 2012 the said merger was sanctioned by this
Court.
(d) Hence, the different businesses which were originally being run
through subsidiaries were brought into Defendant No.4 in the
backdrop of the Family Arrangement and the understanding that
the rights of management control enjoyed by different members
of the families (which they were originally enjoying through the
subsidiaries) would continue to be respected by accepting
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different divisions within Defendant No.4.
(e)Further, to protect the interests of the existing members of
Defendant No.4 and their respective family members who
continued as its shareholders, it was ensured that they enjoyed
representation in the management and it is for this reason that
each family group which held 25% had full autonomy and
managed and controlled its own division within Defendant No.4.
(hh) Even prior to and post 2010/2012, Plaintiff No.1, Defendant Nos. 1 and
3 and late Sanjiv ran separate businesses under their respective agreed
divisions as under:
Sr. No. Continuing Member Division
1. Defendant No. 1. Metal Rolling and Rod
Subsequently, his son, Sajil in 2016.
2. Defendant Nos. 1 and 3. Elite Cookware (closed in
Subsequently, their sons, Sajil and Shival, in 2016 and 2020)
2015 respectively.
3. Sanjiv, until his demise on 18th May, 2022. Trading
After Sanjiv’s demise, Defendant Nos. 1 and 3
alongwith their sons Shival and Sajil, respectively.
4. Plaintiffs Export and Aluminium
5. Plaintiffs Aluminium retail shop
(ii) In fact, the aforesaid divisions maintained their separate bank accounts
with more than one signatory. Defendant No 3 used to also look after
and manage the accounts and compliance requirements of the entire
Group. It is pertinent to note that before filing the accounts of
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Defendant No.4, a division wise break up was always prepared to assess
the progress or deterioration of each of the divisions being managed by
each of the directors.
(jj) Plaintiff No.1, along with his son, Plaintiff No.2, took various steps to
grow the Export Division, including, but not limited to, adding new
machinery and introducing new products to cater to the changing
demand in the export markets. Due to Plaintiff No.1’s continuous
efforts and innovative ideas, the Export Division became not only the
most revenue generating division but also the backbone of Defendant
No.4, and supported the other loss-making divisions. From the balance
sheet of Defendant No.4, it is evident that the Export Division, which
was singlehandedly managed by Plaintiff No.1 and his son, was the only
significant profit-making division in Defendant No.4.
(kk) In marked contrast, the divisions handled by Defendant Nos. 1 and 3
had been consistently and deliberately recording losses in the books,
resulting in a drastic drop in Defendant No.4’s overall profits,
ultimately affecting the earnings of Plaintiff No. 1. This is clear from
the following chart :
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appl30581-23.docTable – Lallubhai Amichand Company Wise Profitability – 2011 – 2021
Sr. Director / Executive in Division Accumulated Profit/
No Charge Loss from 2011- 21
.
1. Plaintiff No.1 Retail Shop Profit – 94,70,795
Export / Aluminium Profit – 27,93,19,611
Total Profit – 28.87 cr.
2. Late Sanjiv Shah Trading Profit 91,90,812
Defendant Nos. 1 and 3 Wire Rods (Dhiren and Loss – 11,53,34,041
Paresh)
Elite Cookware Loss – 11,88,02,419
Total Loss Rs. 22.50 cr.
(ll) Since Plaintiff No.1’s division was the only profit-making division,
Plaintiff No.1’s division infused monies in the other divisions of
Defendant No.4. The salaries of employees and other expenses of
Defendant No.4 were largely borne by Plaintiff No.1’s division in
addition to the fact that Plaintiff No.1’s division advanced loans to
Defendant Nos. 1 and 3 for various business purposes. As far as Plaintiff
No.1 recollects, till date Plaintiff No.1’s division has advanced a sum of
approximately Rs. 2.5 crores to the Elite Cookware Division and Rs.40-
50 lakhs to the Metal Rolling and Rod Division.
(mm) From 2012 onwards i.e. after the merger of the various entities into
Defendant No.4, Plaintiff No.1 learnt that Defendant Nos.1 and 3 and
late Sanjiv were mismanaging the accounts of Defendant No.4 and
transacting the majority of their business in cash for the divisions
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handled / managed by them. On several occasions, Plaintiff No.1,
confronted and requested Defendant Nos. 1 and 3 and Sanjiv not to
do so and called upon them to correct all their wrongdoings.
(nn) In particular, the Metal Rolling and Rod Division of Defendant No.4
had been transacting their business in cash with a view to evade the
statutory liabilities and had been siphoning monies from Defendant
No.4, with the assistance of Defendant No.3, without maintaining any
records of such cash transactions.
(oo) The following are some of the instances which the Plaintiffs rely upon to
demonstrate the breach of trust and faith committed by Defendant Nos
1 and 3 and their family group :
(a) Defendant Nos. 1 and 3 have siphoned cash from
Defendant No.4 without Plaintiff No.1’s knowledge
and/or giving any proper accounts to Plaintiff No.1
and despite several regular follow-ups by Plaintiff No.
1.
(b) A large amount of the business of Defendant No.4
was being conducted in cash. As a result, there was a
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appl30581-23.doccash book maintained which would account for the
transactions. The said Cash Book was accessible by the
family members. The Cash Book was maintained in a
manner which would reveal which one of the three
brothers was instructing the cash flow. This was
indicated by assigning their respective initials viz
“DRS” stood for Defendant No.1, Dhiren
Rameshchandra Shah, “PRS” stood for Defendant
No.3, Paresh Rameshchandra Shah etc. Due to limited
access, Plaintiff No. 1 has been able to ascertain the
following instances from the extracts of the Cash Book
available with them which show that:-
(i) Unusually large amounts of cash were being
credited on account of one entity VK Enterprises
which was run by one Keyurbhai and which had
dealings with the Metal Rolling division managed
by Defendant No.1.
(ii) As far as the Plaintiffs are aware, VK
Enterprises did not have any significant business
dealings with the division but was merely
employed as a means to route the cash. This was
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statutory liabilities and not provide accounts to
Plaintiff No.1. An extract of the Cash Book in
respect of VK Enterprises would show huge
amounts of cash transactions without any
business dealings, which for reference purposes
have in most cases been earmarked with the
words “entry” or “e” to denote that the same were
merely entries without any underlying business
transactions.
(iii) Similar entries are also found in respect of
one Ashok of Shah Jawanmal Hajariwal & Co., a
supplier and client of Metal Rolling whose name
was also employed to achieve the same object of
siphoning off/routing illegal cash.
(iv) As far as Plaintiffs are aware, the said
transactions were merely fraudulent entries only
maintained to keep a track of the cash being
routed and siphoned off from Lallubhai
Amichand. Plaintiffs verily believe that a
thorough investigation of the books of accounts of
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appl30581-23.docDefendant No.4 would reveal the enormity of the
cash transactions by which Defendant Nos. 1 and
3 siphoned off monies.
(c) The Metal Rolling Division (which was under the
control of Defendant No.1 and his son and Defendant
No.3) used to maintain an informal and formal
accounting system side by side. By employing this
system, cash transactions would be shown in a column
shown as “others” whereas the official transactions
would be shown under usual legitimate heads. The
said system was adopted to window dress the accounts
to show lesser profits, pay lesser taxes, but undertake
transactions in cash, and siphon off the corresponding
profit made in cash. This is evident from one such
Profit and Loss Account of August 2022 available with
the Plaintiffs. The said Profit and Loss Account shows
that whilst Electricity Charges are being paid to the
tune of Rs. 3,19,110, the total official revenue is shown
as Rs. 2,37,087. It is inconceivable that if the level of
production requires payment of electricity charges to
the tune of Rs. 3,19,110, the revenue would be a mere
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Rs.2,37,087. Further, while the total unofficial revenue
is shown as Rs.37,11,934, and the unofficial net profit
is shown as Rs.17,28,196, officially a Net Loss of Rs.
13,47,727 is reported. This makes it evident that a
large amount of business was being conducted off the
record to siphon off monies.
(d) Writing-off receivables without following the due
process and without taking any legal action for
recovery.
(e) At the instance of Defendant No.3, who was
handling the Accounts Division, a sum of Rs.
2,00,00,000/- (Rupees Two Crores only) was
advanced to one Mr. Kamal Shah, Defendant No.1’s
brother-in-law, on the assurance that Defendant No.3
would be responsible to recover the money. However,
the money was never recovered from Mr. Kamal Shah,
despite several reminders from Plaintiff No.1.
(f) Saloni (executive director and lawyer by
profession) along with Shival has, since about 2018,
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been running a business of agricultural, horticulture
and forestry products under the brand name, “Mansai”
and “Tillage” on the land owned by the Mansa
Gaushala Trust where the Directors of the Defendant
No.4 are the Trustees. This business was originally
started by Saloni, Shival and Sajil. The business is run
“in association” with Defendant No.4 using its
resources and factory premises as a godown. In fact,
Saloni is the proprietor of a registered trademark,
“Mansai” and the proprietor address is that of the
Defendant No.4. However, despite using the resources
of Defendant No.4 and taking away hundreds of
kilograms of produce of organic millets and grains of
Mansa Gaushala Trust, [the audited balance sheet of
the Trust/ Company do not show the requisite
disclosure in this regard], the Jagmohandas branch
was never fully made aware of this business.
(g) Unilateral transfers of about Rs.1,00,00,000/-
(Rupees One Crore only) by Saloni from Defendant
No.7 to a bank account of Defendant No 4, which was
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solely managed by Paresh and Dhiren, to utilise the
funds to obtain a Letter of Credit for their trading
business purposes without Plaintiff No.1’s knowledge.
Similarly, another unilateral transfer of Rs.
80,00,000/- (Rupees Eighty Lakhs only) to the
account of one IJI Realty was done without informing
the other partners on 6 February 2021.
(pp) Hence, whilst the export division of Defendant No.4 was being
managed by Plaintiff No.1 and was the only division generating a profit,
the other divisions managed by Defendant Nos. 1 to 3 were booking
losses. These losses were substantially artificial losses. Since a large
chunk of their business was being carried out in cash, the accounts of
Defendant No.4 became lopsided and financially disadvantageous and
unviable for Plaintiff No. 1.
(qq) It is because of the above situation and due to the various illicit
methods of business adopted by Defendant Nos. 1 and 3, that Plaintiff
No.1 started insisting that Defendant Nos. 1 and 3 and Sanjiv provide
him a fair exit from the business. However, being in the majority, the
three brothers ignored Plaintiff No.1’s stand and marginalized him.
While the Plaintiffs enjoyed functional autonomy and authority, they
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were at a disadvantage, in terms of their share. The other group enjoyed
thrice the share that the Plaintiffs had. Therefore, precipitating matters
would take matters nowhere and a consensual separation was the
realistic and practical way forward. On this account, and as they were
his family members and partners, Plaintiff No.1 did not take any steps
against them. On several occasions, Plaintiff No.1 requested for
accounts for loans, cash books maintained for other businesses and
trusts etc. which were deliberately withheld by Defendant Nos. 1 and 3.
It was clear to Plaintiff No 1 that Defendant Nos. 1 and 3 and Sanjiv
were avoiding a separation as they were aware that a separation would
prove disastrous for them. They were aware that, under their Family
Arrangement, Plaintiff No. 1 had been running the Export Division and
making handsome profits. Since the Family Arrangement was that the
Export Division was his baby, he would expected to take that business
with him. Even if he did not and was to be compensated, there would be
a huge pay out. In addition, they lacked the resources /ability to run it
as well as Plaintiff No.1. Moreover, any separation, would inevitably
lead to an accounting exercise which would have revealed the
infractions of the Rameshchandra branch and would have led to a
separation of the only profit making division from the Lallubhai
Amichand Group i.e. the Export Division which was singlehandedly run
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by Plaintiff No. 1 and his family.
(rr) It is amidst the context of the exit discussions/negotiations ongoing
between Plaintiff No. 1, Defendant Nos. 1 and 3 and Sanjiv that, in
2014, Plaintiff No.1, along with his son, incorporated a company namely
Absolink Enterprises Pvt. Ltd.(“Absolink”). The following demonstrates
that Defendant Nos 1 to 3 were aware of Absolink and the limited
quantum of business which the Plaintiffs had undertaken through this
entity.
(a) Absolink’s business was run from the common
offices of Defendant No.4 with the help of various
teams (including accounts team headed by Defendant
No.3) of Defendant No.4.
(b) The financials and bank statements of Absolink
were regularly emailed to the registered email id of
Defendant No.4 viz. [email protected] to
which all the directors of Defendant No.4 had access.
(c) Thus, it is evident that Absolink was
incorporated and had commenced its business with
consent and full knowledge of Defendant No.4 and its
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directors since inception. The other directors were
wellaware of the business conducted by the Absolink,
since the Plaintiff No.1’s expertise has always been in
exports. They did not raise any objections to the same.
(ss) The revenue of the Export Division of Defendant No.4 remained
unaffected even after Absolink was incorporated by the Plaintiffs. In
fact, Absolink was barely doing any business. It was really incorporated
in view of the on-going discussions between the family members in
relation to the Plaintiffs’ exit from the family business / Defendant No.4
and the aforesaid is evident from the revenues of Absolink. Even though
Absolink was incorporated in the year, 2014, the total revenue
generated till date is a mere sum of Rs. 2,77,69,630/- (out of which only
Rs. 1,58,69,630/- is from exports) whereas, during the period of 2014 to
2021, Defendant No.4 has generated revenues in the sum of Rs.
357,35,52,709/-.
(tt) Upon the demise of Sanjiv in the year 2022, his daughter, Saloni, was
made an Executive Director in Defendant No.4, as per the Family
Arrangement and course of conduct of business adopted by Plaintiff
No.1, Defendant Nos. 1 and 3 and their families such that each branch
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thereof shall have equal representation in the management.
(uu) After continuous follow up from Plaintiff No. 1 to provide him a fair
exit, Defendant Nos. 1 to 3 reluctantly attended meetings with their
Chartered Accountant, Mr. Bhuta Shah, and thereafter with the
Solicitor, Mr. Mahendra Ghelani. Accordingly, pursuant to advice
received in multiple meetings held with the aforesaid professionals, a
valuation of the various properties of Defendant No.4 was agreed to be
conducted. In view of the same, with efforts of Plaintiff No.1, a valuer
(Mr. Anmol Sekhri) was appointed in October 2022 for which the
advance payments were made by Defendant No.4. Defendant Nos. 1 to
3 were informed that the draft Valuation Reports were to be shared by
the Valuer in December / January 2023. The final Reports were to be
shared with Defendant Nos. 1 to 3 in the last week of March 2023. On
8th April 2023, Plaintiff No. 1 informed Defendant No.3 that the
Valuation Reports were now ready and would be shared on 10 th April
2023. In fact, Defendant No.3 had enquired about the same on 11 th April
2023 with Plaintiff No.1 and on 25 th May 2023, Anmol Sekhri, the
appointed valuer, sent a mail to Defendant Nos. 1 and 3 attaching
Valuation Reports for all the properties.
(vv) However, Defendant Nos. 1 to 3 having realized that the Plaintiff No.1
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would have to be provided his fair share post accounts being drawn up
for all entities/trusts etc. including hiving off the only profitable
division, instead planned to oust Plaintiff No. 1 from the business
altogether.
(ww) On 13th April 2023, the Plaintiffs were shocked to learn that an ex-parte
Order dated 5th April 2023 had been passed by this Court in
Commercial (IP) Suit No. 177 of 2023 (“IP Suit”) filed by Defendant
No.4 against Absolink, Plaintiff No.1 and his son Plaintiff No.2, wherein
it was falsely represented to this Court that an allegedly competing
business was being carried out by Plaintiffs in Absolink leading to huge
profits without the knowledge of the other directors of Defendant No.4.
The said IP Suit and the Interim Application taken out therein, sought
drastic and far reaching reliefs whose intent and import very clearly was
to throw Plaintiff No.1 out of the family business. In the IP Suit, by
misleading this Court, by practising suppressio veri and/or suggestio
falsi, an ex-parte Order, interalia, which barred the Plaintiffs from
visiting or accessing their office/business premises or accessing any
physical/digital documents was sought and obtained. Also sought and
obtained were reliefs for the Court Receiver to take search of the
various premises of Absolink and Plaintiff No.1 on 13th April 2023.
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(xx) Post receipt of the ex-parte order and realizing that they had moved this
Court without full disclosure, and that the said Order would be vacated
upon the correct and true facts being brought to the attention of this
Court, the ex-parte Order was sought to be maliciously employed by
Defendant Nos. 1 to 3 to initiate the process of ousting Plaintiff No. 1
from participation in the management and control of Defendant No.4,
with the design that events would overtake the Plaintiffs and present
the Plaintiffs with a fait accompli, which would make any attempt to get
the order vacated meaningless.
(yy) Whilst the Court Receiver was actually visiting Absolink’s premises in
Ahmedabad, Defendant No.1 addressed an email at about 12.55 p.m.
annexing a Special Notice dated 13th April 2023, under Sections 100, 115
and 169 of the Companies Act, 2013, for calling an Extra Ordinary
General Meeting for removal of Plaintiff No.1 as a director of Defendant
No.4. An email enclosing a Requisition to convene the Board meeting of
Defendant No. 5 was addressed by Defendant No.1 at around 3.25 p.m.
Acting in concert, Defendant No.3 purported to email separate
Requisitions, both dated 13th April 2023, at around 5.48 pm and 7.08
pm, calling for a meeting of the Board of Directors of Defendant No.4
and Defendant No. 5, respectively, on 21 st April 2023. The said
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requisitions proceed entirely on the same basis as the allegations made
in the IP Suit.
(zz) In continuation of the pre-meditated strategy, on 14 April 2023, a
circular was addressed to the clients of Defendant No.4 falsely
informing them that Plaintiff No.1 was no longer involved in the
management of Defendant No.4. Simultaneously, letters were
addressed to Plaintiff Nos. 1 and 2 informing them of a purported
termination from their employment with Defendant No.4. Defendant
Nos. 1 to 3 threatened Defendant No.4’s common employees, Chartered
Accountants and other third-party providers to refrain from even
communicating with Plaintiff No.1 or his family, failing which they
would face dire legal and other consequences. Similar letters were also
addressed to all the clients of the export division of the Defendant No.4
defaming and maligning Plaintiff No.1’s hard earned reputation and
goodwill.
(aaa) On 17th April 2023, upon a request made by the Plaintiffs’ erstwhile
Advocate, the Advocates for Defendant No.4 provided a copy of the IP
Suit and Interim Application (L) No.8399 of 2023 therein. A perusal of
the Plaint made it demonstrably clear that Defendant Nos.1 to 4 had
intentionally set up the following false case:
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(a) that in 2015, the Plaintiffs had incorporated
Absolink and, when Plaintiff No.1 was confronted by
Defendant Nos.1 to 4 about the incorporation of
Absolink, he informed them that the same had been
formed to handle his personal investments;
(b) that it was only in December 2022 that Defendant
Nos. 1 to 4 realized that the Plaintiffs were in fact
carrying on a business through Absolink which was
competing with the business of Defendant No 4; and
(c) the same constituted a breach of fiduciary duties,
confidence and trust as well as infringement of the
Defendant No 4’s trademark.
(bbb) Despite Defendant No.4’s IP Suit being replete with falsehoods, the
same contains unequivocal admissions on the part of Defendant Nos. 1
to 4 of the fact that Defendant No.4 is a family company and a quasi-
partnership and that different directors were managing different
divisions of the company. This is more than apparent from a bare
perusal of paragraphs 10.3, 11, 11.1, 11.2, 13, 41 and 42 of the Plaint.
Considering the fact that Defendant Nos. 1 to 4 have unequivocally
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committed themselves to the position that Defendant No.4 is a family
company run as a quasi-partnership and that the Plaintiffs should be
held accountable on those principles, Defendant Nos. 1 to 4 must be
held equally liable and accountable on those same principles and
standards.
(ccc) Be that as it may, in order to have the ex-parte ad-interim order dated
5th April 2023 vacated, the Plaintiffs herein filed an Affidavit in
Reply and a limited Additional Affidavit dated 19 th April 2023 and 6th
June 2023, respectively. By these Affidavits, the Plaintiffs placed on
record the various facts and circumstances which Defendant
Nos.1 to 4 had suppressed from this Court at the time of applying for ex
parte ad-interim reliefs. To summarise, these Affidavits elaborated on
the fact that (a) whilst Defendant No.4 was undisputedly a quasi-
partnership in which all members of the various branches of the
families had joint ownership, there was a family arrangement of 2010,
(b) this had been acted upon and implemented; (c) pursuant thereto,
Plaintiff No. 1 was solely entitled to management control of the
aluminium export division of Defendant No.4; (d) this had been
accepted by Defendant Nos 1 to 3; (e) it is the illicit business activities of
Defendant Nos 1 to 3, the losses being incurred by them, and the cash
business being conducted by them, which necessitated exit negotiations
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between the Plaintiffs and Defendant Nos. 1 to 3; (f) it is in the
midst of these exit negotiations that Defendant Nos.1 to 4
intentionally propounded the false case of the Plaintiffs indulging in
a diversion of business and clients and carrying out his business
through Absolink. It was pointed out that these allegations were
factually incorrect; that the business done through Absolink was
minuscule, and that Defendant Nos 1 to 3 were all along aware of the
existence and functioning of Absolink.
(ddd) The present Advocates of the Plaintiffs entered appearance on 23/24
May 2023 in the IP Suit. Thereafter, correspondence was addressed
particularly between 24th and 26th May 2023 referring to the
inexplicable manner in which the Interim Application (L) No. 8399 of
2023 and IP Suit had been filed, moved and heard by circumventing
various processes and procedures. In particular, by a letter dated 26 th
May 2023, Plaintiff No.1’s Advocates addressed a letter to the
Defendant No. 4 and its Directors setting out in detail the malicious,
unilateral and illegal behavior of Defendant Nos. 1 to 3 in getting issued
various notices and convening an EGM. In view of the contents of the
said letter they were called upon to adjourn the meeting without
transacting any business. No response was however received to the said
letter.
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(eee) Due to the fact that no reply had yet been received, Plaintiff No.1’s
Advocates, by a further letter dated 27 th May 2023, inquired from the
Advocates on behalf of Defendant No.4 whether the EGM had been
held, and, if so, the names of the persons who attended the said
meeting, the business transacted at the said meetings, etc. However,
despite an express request for an early response, no reply was received,
compelling Plaintiffs’ Advocates to address another letter in this regard
on 29th May 2023.
(fff) A day prior to the hearing scheduled in the Interim Application (L) No.
8399 of 2023 on 6th June 2023, the Advocates of Defendant No.4
addressed a letter responding to the various letters addressed by
Plaintiffs’ Advocates. It was only by this letter that the Plaintiffs
received a copy of the purported Minutes of the Meeting and the copy
of the Resolution passed at that meeting held on 27 th May 2023
whereby Plaintiff No.1 was removed as a director of Defendant No.4.
(ggg) In the meantime, from the date of the ex-parte Order dated 5 th April
2023 till date, the Defendants, and particularly Defendant Nos.1 to 3,
have taken various unilateral, malicious and far reaching steps to
disturb the status quo. These actions have only been taken with a view
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to cause prejudice to Plaintiff No.1’s rights and interest in Defendant
No.4 and the various family entities and trusts.
(hhh) Whilst the aforesaid IP Suit was sub-judice, in aggravation of their
illegal and malafide pre-meditated acts, Defendant No.1 to 3 malafide
and illegally accessed, packed and literally threw out Plaintiff No.1’s/his
family’s electronics, furniture etc., without his permission or knowledge
in the compound of the office of Defendant No.4 on 9 th June 2023 in
gross over reach of the orders of this Court. The illegal and malafide
acts were to literally dispossess the Plaintiff from his office premises of
40 years under the garb of the ex-parte ad-interim order dated 5 th April
2023.
(iii) Thereafter, Interim Application (L) No.8399 of 2023 in the IP Suit was
heard on various occasions, and by an Order dated 3 rd July 2023 this
Court vacated the ex-parte Order dated 5 th April 2023 interalia stating
as under:
“In my view, there has been a failure on the part of Plaintiff to
disclose material facts, which if disclosed, the ex-parte order
may not have been passed…. It is made clear that this Court has
not gone into merits of the application, particularly considering
that the Defendants by virtue of the ex-parte order have not been
able to access relevant material which would offer them an
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appl30581-23.docApplication of the Plaintiff. …… In view thereof, the ex-parte
order dated 5th April, 2023 is vacated.”
The Defendants shall file their additional Affidavit in Reply to
the Interim Application on merits within a period of three weeks
from the date of this Order. The Plaintiff is at liberty to file their
Affidavit in Rejoinder within a period of two weeks thereafter.”
(jjj) The Plaintiffs, thereafter, in the Plaint, refer to the subsequent
correspondence exchanged between the parties and state that, in these
circumstances, the present Suit was filed.
5. The Plaintiffs filed Interim Application (L) No.22820 of 2023 in
the present Suit seeking interim and ad-interim reliefs, wherein they
reiterated the contents of the Plaint.
6. Saloni Shah (Defendant No.2) filed a Limited Affidavit dated 29 th
August 2023, on behalf of Defendant No.4, opposing the grant of ad-interim
reliefs, which states as under:
a) That the ad-interim reliefs ought not to be granted for the
following reasons:
i) There is no urgency whatsoever which warrants the
grant of any urgent ad-interim reliefs;
ii) There is in fact delay on the part of the Plaintiff in
approaching this Hon’ble Court on the cause of
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iii)The reliefs sought are in the nature of mandatory
injunction/final reliefs, which in the current facts
and circumstances are not warranted and cannot be
granted;
iv)The status quo which is sought to be restored is as
on 4 April 2023, which cannot be granted.
v) The entire cause of action is defective and the suit in
its current form is not maintainable;
vi)The suit suffers from misjoinder of causes of action;
and
vii)The Plaintiffs’ entire conduct is such that it
disentitles them from grant of any equitable relief.
b. Defendant No.4 was constrained to file the IP Suit on account of
the fact that the Plaintiff, while being a Director of Defendant No.4, was
conducting a competing business .
c. From the said averments in the Plaint of the IP Suit, it is evident
that :
(i) Plaintiff No.1 was competing with the
business of this Defendant through his own company
viz. Absolink Enterprise Pvt. Ltd. (“Absolink”) of
which he was in complete control, ownership and
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management and of which he was a Director along
with Plaintiff No. 2.
(ii) The Plaintiffs were also conducting a
competing business through various devices and
stratagems interalia such as:
(ii-1) Representing to customers of Defendant No.4
that the said Absolink was a sister concern of
Defendant No.4;
(ii-2) Infringing the trademark(s) of Defendant
No.4;
(ii-3) Diverting the commissions and revenues of
Defendant No.4 to his own personal use and
interalia into the accounts of son (Plaintiff No. 2),
daughter and wife;
(ii-4) Soliciting Defendant No.4’s agents and
customers,(ii-5) Surreptitiously running a parallel
establishment for the purposes of his said
competing business in close proximity to Defendant
No.4’s premises, and(ii-6) Diverting and misappropriating the resources
of Defendant No.4.
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appl30581-23.docd. With a view to preserve the material and evidence concerning
such illegal competition being conducted by the Plaintiffs, Defendant
No.4 approached this Court in the IP Suit for an ex-parte order.
e. On 5th April 2023, the Learned Single Judge of this Court granted
an ex-parte order in the terms stated therein. The said ex-parte order
was duly acted upon by the Court Receiver. The Court Receiver filed
his Report dated 18th April 2023 in this regard.
f. In the meanwhile, Defendant No.1 issued a Special Notice dated
13th April 2023, pursuant to Sections 100, 115 and 169 of the
Companies Act, 2013, calling for the convening of an Extra-Ordinary
General Meeting to interalia consider removal of the Plaintiff. The
resolution to remove the Plaintiff was interalia on account of his acts
against the interest of Defendant No.4 by indulging in competing
business, his acts of solicitation of Defendant No.4’s clients by making
false representations saying that Absolink is a sister concem Company
and his acts of engaging the Company’s employees for facilitating the
business of Absolink.
g. Also, on 13th April 2023, Defendant No.4, by letters of the same
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appl30581-23.docdate issued to the Plaintiff No.1 and 2 respectively, terminated their
employment with Defendant no.4.
h. On 13th April 2023, Defendant No.4 also issued a Notice of a
Board Meeting which was to be held on 21 st April 2023. The agenda for
this Board Meeting was also annexed to the Notice of the Board
Meeting.
i. Subsequently, on 20th April 2023, this Defendant issued and sent
to all (including Plaintiff No. 1) a Notice titled “Change of venue for
the 1st Meeting of the Board of Directors” in furtherance to the above
Notice of the Board Meeting of the same date. By this notice, the venue
of the Board Meeting to be held on 21 st April 2023 was changed.
Previously the venue decided for the abovementioned board meeting
was the office of Defendant No.4 at Tardeo, Mumbai, which could not
be attended by Plaintiff No. 1 in terms of the Order of the Learned
Single Judge dated 5th April 2023. Accordingly, the venue was changed
from the office of Defendant No.4 at Tardeo, Mumbai, to Orritel
Arbitration and Business Centre, Fort, so as to enable the Plaintiff No.
1 to attend.
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j. On 19th April 2023, the Plaintiffs herein e-filed an affidavit in the
IP Suit bearing the title “Affidavit in Reply on behalf of the Defendants”,
which was served upon Defendant No.4 herein on 20th April 2023. In the
said Affidavit, the Plaintiffs herein interalia prayed that:
“m. In view of the above, I humbly pray as under:
i. The Ex-Parte Order dated 5 April 2023 to be vacated;
ii. The Defendant No. 3 and 1 be allowed to enter the premises of
the Plaintiff.
iii. The evidences confiscated by the receiver be returned and in
the alternative, the copies of all the documents seized by the
Court Receiver be handed over to the Defendants.
iv. The meeting scheduled on 21 April 2023 for formally
removing me as a director is stayed”.
k. As such, it is evident that the Plaintiff was challenging the notice
seeking to remove him as a director and that, at least from the date of
this Affidavit, i.e., 19th April 2023, the Plaintiff was fully conscious and
aware of the need to take action against his removal as a director.
l. On 21st April 2023, when the Board Meeting of Defendant No.4
was held, it was attended by Plaintiff No.1 and Siddhartha Puthoor from
Mehta and Padamsey Advocates & Solicitors for Plaintiff No.1. Thus
Plaintiff No.1 attended the Board Meeting with his Advocates. Further, as
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can be seen from a reading of the Minutes, Plaintiff No. 1 had sent across
a representation dated 20th April 2023 and also made representation/
letter dated 21st April 2023. The following resolutions interalia came to
be passed at the Board Meeting of Defendant No.4 held on 21 st April
2023:
“(Resolution No. 1)
“RESOLVED THAT the notice of interest in Form MBP-1
received from Mr. Dhirendra Rameshchandra Shah
(DIN:00646825), Mr. Paresh Rameshchandra Shah (DIN:
00646745), Mr. Sunil Jagmohandas Shah (DIN: 00646793) and
Mrs. Saloni Shah Anchan (DIN: 09697034), directors of the
Company pursuant to the provisions of Section 184(1) of the
Companies Act, 2013 read with Rule 9(1) of the Companies
(Meetings of Board and its Powers) Rules, 2014, be and are
hereby noted and taken on record by the Board.”
(Resolution No. 2)
RESOLVED THAT pursuant to section 164 of the Companies
Act, 2013, the declarations received in Form DIR-8 from Mr.
Dhirendra Rameshchandra Shah (DIN: 00646825), Mr. Paresh
Rameshchandra Shah (DIN: 00646745), Mr. Sunil Jagmohandas
Shah (DIN: 00646793) and Mrs. Saloni Shah Anchan (DIN:
09697034), directors of the Company be and are hereby noted
and taken on record by the Board.”
(Resolution No. 3)
RESOLVED THAT pursuant to the provisions of Section 115, 169
and other applicable provisions, (if any) of the Companies Act,
2013 and the rules made there under (including any statutory
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appl30581-23.docmodification(s) or re-enactment(s) thereof for the time being in
force) and relevant provisions of the Articles of Association of
the Company and subject to the approval of the members, Mr.
Sunil Jagmohandas Shah (DIN: 00646793) be and is hereby
removed from his office as a Director of the Company and all the
powers and responsibilities given to him in executive capacity of
the company with immediate effect from the date of this meetingRESOLVED FURTHER THAT the Board of the Directors of the
Company be and is hereby severally authorized to do all acts,
deeds, matters and things as deem necessary, proper or desirable
and to sign and execute all necessary documents, applications
and returns along with filing of necessary E-forms with the
Registrar of Companies.”
(Resolution No. 4)
“RESOLVED THAT the Extra-Ordinary General Meeting of the
Company be convened at ORRITEL ARBITRATION AND
BUSINESS CENTER, 89 ARARAT BUILDING, KALAGHODHA
FORT MUMBAI 400023 at 11:00 am on FRIDAY, 15th MAY
2023.
RESOLVED FURTHER THAT the draft notice along with map of
the venue as placed before the meeting, be and is hereby
approved and the same be issued to the shareholders of the
Company under the signatures of any of the Directors of the
Company for and on behalf of the Company.”
m. On 16th May 2023, Defendant No.4 adjourned the Extra-Ordinary
General Meeting (notice of which had been given on 13 th April 2023) to
27th May 2023 to be held at the same venue as decided earlier, i.e.,
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Orritel Arbitration and Business Centre, Fort, at 11 am, by way of its
“Notice of Adjourned Extra-Ordinary General Meeting” which was issued
and sent to all including Plaintiff No.1.
n. The Extra-Ordinary General Meeting of Defendant No.4 was held
on 27th May 2023 and was attended by the following persons:
1. Mr. Dhirendra R. Shah Member and Director
2. Mr. Dhirendra R. Shah Karta of Dhirendra Shah HUF
3. Mr. Paresh R. Shah Member and Director
4. Mr. Paresh R. Shah Karta of Paresh Shah HUF
5. Mrs. Rajeshri Sanjiv Shah Member
6. Mrs. Brinda Rahul Kapur Karta of Sanjiv Shah HUF
7. Mr. Shival Paresh Shah Proxy for Indira R. Shah
8. Mr. Sajil Dhirendra Shah Proxy for Jasmina V. Shah
o. Item No. 3 of the Minutes of the said EOGM record the events with
regard to the removal of the Plaintiff No. 1 from the post of director and read
as under:
“REMOVAL OF MR. SUNIL JAGMOHANDAS SHAH (DIN:
00646793) FROM THE POST OF THE DIRECTOR:
The Chairman briefed the shareholders about the reason for the
adjourning the meeting to this date and informed about the
requisition and a special notice received on 13th April 2003 (the
“Requisition”), in terms of Section 169 read with Section 115 of
the Companies Act, 2013 and the rules framed thereunder for
convening an EGM, by the below mentioned requisitionist (the
“Requisitionist”) for removal of Mr. Sunil Jagmohandas Shah
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appl30581-23.doc(DIN: 00646793) us the Director of the Company:
Name of Requisitionists Percentage of paid-up
capital of the Company
Dhiren R. Shah 15.17%Pursuant to the provisions of Section 115, 169 of the Companies
Act, 2013 read with relevant rules made thereunder, the Board of
Directors in their meeting held on 22nd April 2023 has decided
to remove Mr. Sunil Jagmohandas Shah (DIN: 00646793) on the
grounds of running competing business and also for non-
performance of the fiduciary duties and issues concerning
transparency and integrity.
The Chairman gave a detailed presentation about the grounds
proposed for the removal of Mr. Sunil Jagmohandas Shah by
reading the extract.
He also read the extract from the petitions filed with the Hon’ble
Bombay High Court and the orders connected with the matter.
Copies of such extract is attached herewith as Annexure-A.The Chairman also informed that pursuant to FIR filed by the
Company, Mr. Sunil Jagmohandas Shah has applied for the
anticipatory bail from the appropriate Court. The Chairman read
out various conditions laid by the Court for granting such
anticipatory bail.
He also provided answers to various questions raised by the
shareholders in this regard and the allegations made by the
Company on Mr. Sunil Jagmohandas Shah.
The Chairman informed that despite being served with the notice
and the agenda for the present meeting, Mr. Sunil Jagmohandas
Shah has not come to the meeting to make his representation
before the shareholders. Hence, the Chairman read out the
representation sent by Mr. Sunil Jagmohandas Shah to the Board
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appl30581-23.docof the Company and the same is attached herewith this minutes
as Annexure-B and C.After detail discussion following resolution was unanimously
passed by the member of the Company as Ordinary Resolution:
Proposed By: Mr. Dhirendra R. Shah
Seconded by: Mrs Rajeshri R. Shah
(Resolution No. 1)
“RESOLVED THAT pursuant to the provisions of Section 115,
169 and other applicable provisions, (if any) of the Companies
Act, 2013 and the rules made there under (including any
statutory modification(s) or re-enactment(s) thereof for the time
being in force) and relevant provisions of the Articles of
Association of the Company, Mr. Sunil Jagmohandas Shah (DIN:
00646793) be and is hereby removed from his office as the
director of the company and all the powers and responsibilities
given to him in executive capacity of the company with
immediate effect from the date of this meeting.
RESOLVED FURTHER THAT Board of the Directors of the
Company be and is hereby severally authorized to do all acts,
deeds, matters and things as deem necessary, proper or desirable
and to sign and execute all necessary documents, applications
and returns along with filing of necessary E-forms with the
Registrar of Companies.”
p. There is no dispute with regard to the Minutes of the said EOGM,
and these clearly record that:
“i. despite service of the said Special Notice of the
EOGM, the Plaintiff No.1 did not attend the meeting and did not
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ii. that the decision to remove the Plaintiff No. 1 as a Director
was on account of the fact that he was running a competing
business and for breach of his fiduciary duties and lack of
transparency and integrity,iii. the Chairman read relevant extracts from the said Defendant
Suit and from the orders passed by this Court;
iv. the Chairman informed the general body of the FIR filed and
the fact that the Plaintiff had applied for anticipatory bail and
read out various conditions set out by the Court for the grant of
anticipatory bail; andv. the Chairman specifically pointed out that despite notice, the
Plaintiff No. 1 did not attend the meeting to make his
representations before the shareholders.”
q. By a letter dated 6th June 2023, a copy of the said Minutes of the EOGM
was sent by Defendant No.4’s Advocates to Plaintiffs’ Advocates. Accordingly,
it is evident that, from 6 th June 2023, the Plaintiff No.1 was aware that he had
been removed as a Director of Defendant No. 4 company.
r. Thereafter, various pleadings were filed by the Plaintiffs, including an
Affidavit titled ‘Limited Additional Affidavit on behalf of Defendants’ dated 6 th
June 2023″. The said Affidavit speaks of the alleged family arrangement.
However, despite raising this point in the said Affidavit dated 6th June 2023,
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no proceedings were filed for reinstatement as a director/challenging his
removal as a director. By an Order dated 3 rd July 2023, the Learned Single
Judge vacated the ex-parte order dated 5th April 2023. The Order dated 3rd
July 2023 did not go into the merits of the Application. This is also evident
from the fact that the Defendants were given an opportunity to file an
Additional Affidavit in Reply. The Plaintiffs therein were given an opportunity
to file an Affidavit in Rejoinder, and the Interim Application was posted for
further consideration thereafter.
s. Thereafter, the Plaintiffs Advocates wrote various letters to Defendant
No.4’s Advocates making various false and frivolous claims and allegations
which were responded to by the Defendants Advocates. Since 27 th May 2023
and/or 6th June 2023, the Plaintiff No. 1 has not once taken proceedings to set
aside his removal as a Director of Defendant No.4.
t. In fact, for the first time, the present Suit was filed on 19th August 2023
wherein the Plaintiffs prayed for the same and impugned the removal of
Plaintiff No.1 as a Director of Defendant No.4. The Plaint makes out no
substantial challenge whatsoever to the procedure and the manner in which
Plaintiff No. 1 was legitimately removed as a Director of Defendant No.4.
u. Rest of the said Affidavit contains a paragraph-wise response to the
Interim Application.
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7. By the impugned Order dated 25 th October 2023, the Learned
Single Judge has come to the conclusion as under:
a) that there exists a family arrangement and
that the same can be implemented as the Defendant
No.4 company is a party to it.
b) that Article 145 of the Articles of Association
of Defendant No.4 are not inconsistent with the
provisions of Section 169 of the Companies Act, 2013.
c) Since Plaintiff No.1 was removed by passing
an ordinary resolution in the extraordinary general
meeting of Defendant No.4, the same cannot be said to
be as per Article 145 and therefore, the removal
cannot be said to be valid in the eyes of law.
d) That the grant of mandatory injunction is an
equitable relief and it is based on equitable principles.
If one of the litigants, by taking shelter of law, wants to
defeat the equitable principles, Court cannot shut its
eyes. Ultimately, the background in which the
provisions of Section 169 of the Companies Act are
invoked cannot be overlooked. Court cannot forget the
fact that during the pendency of ad-interim relief in an
Infringement Suit, the power to remove the director
was exercised and the urgency for Defendant No.1 to
Defendant No.3 to exercise that power. The Learned
Single Judge found that there was no urgency. The
Learned Single Judge also found that there cannot be
any intention other than intention to defeat the
legitimate claim of exercise of right by Plaintiff No.1.
The Learned Single Judge held that if such an
unjustified act were to be continued till further
hearing, it will send a message that wrongdoers can be
protected under the guise of law. The Learned Single
Judge further held that if Plaintiff No.1 is not a
director, Defendant No.1 to Defendant No.3 will take
certain decisions which will be detrimental to the
interests of Plaintiff No.1. So a case for interim
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mandatory injunction was made out.
8. On the basis of these findings, the Learned Single Judge
granted ad interim relief directing Defendant Nos.1 to 7 to jointly and / or
severally restore the status quo ante in respect of Plaintiff No.1 as it was
existing from 3rd July 2023 after the passing of the said Order in Interim
Application (L) No.8399 of 2023 in I.P.Suit No.177 of 2023.
9. By an Order dated 10th November 2023, passed in an Application
for speaking to the minutes of the Order dated 25 th October 2023, the Learned
Single Judge clarified that the status quo granted in favour of the Plaintiffs
would be as a Director. The said Order is also the subject matter of two
Appeals filed before us, as stated hereinabove.
FINDINGS AND CONCLUSIONS
10. We have heard Mr. Zal Andhyarujina, the learned Senior
Advocate appearing on behalf of the Defendants (Appellants) and Mr.Karl
Tamboly, the learned Advocate appearing on behalf of the Defendants
(Appellants). We have also heard Mr. Sharan Jagtiani, the learned Senior
Advocate appearing on behalf of the Plaintiffs (Respondents). We have heard
all these Advocates at great length.
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11. Broadly speaking, the parties before us have addressed
arguments on the following three main issues:
a) The family arrangement and MOU dated 3 rd September 2010 and
principle of quasi-partnership.
b) Whether removal of Plaintiff No.1 as a Director is contrary to Article
145 of the Articles of Association of Defendant No.4.
c) Whether Plaintiff No.1 has vacated the office of a Director by virtue of
Article 144(g) of the Articles of Association of Defendant No.4.
12. We will first deal with the issue regarding family arrangement,
MOU dated 3rd September 2010 and quasi-partnership.
13. The question that we have to consider is whether the Learned
Single Judge was right in granting, at an ad-interim stage, a mandatory
injunction reinstating Plaintiff No.1 as a director of Defendant No.4.
14. In this regard, it is the case of the Plaintiffs that the Learned
Single Judge has taken a correct view, or at the very least, a very possible and
a plausible view on a prima facie appreciation of all the facts and factors to
conclude that every branch gets representation in the functioning of
Defendant No.4. The Learned Single Judge has also prima facie held by
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reference to the MOU that there was a family arrangement, thereby giving
protection to Plaintiff No.1. Having rightly come to a prima facie conclusion
as to the family arrangement and a right to participate in the managment
arising from that, the Learned Single Judge had to consider, and which he
has, whether this right was taken away justifiably, at least prima facie, at the
time when it was done and in the manner in which it was done. In other
words, the relevance of the MOU and the Family Arrangement is that such an
important right cannot, without good cause, be taken away only because the
Defendants have the numerical majority to oust or remove Plaintiff No.1 as a
director, and in doing so, repudiate the relationships that exist as between
them in their capacity as partners in a quasi-partnership as also in their
capacity as family members who have signed the MOU which is a family
understanding or family arrangement. The argument of the Plaintiff which
has been accepted is that there is an important and a valuable right, and in
the circumstances of this case, especially after the ex parte Order dated 5th
April 2023 has been vacated, this valuable right emanating from the MOU or
the Family Arrangement, more generally, must be preserved or protected at
the interlocutory stage. This could only be done by the grant of a mandatory
order of injunction to reinstate Plaintiff No.1 as a director so as to continue
the status he enjoyed under the Family Arrangement, as a quasi-partner, and
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under the MOU as interpreted by the Learned Single Judge in the Impugned
Order dated 25th October 2023.
15. We have been at pains to set out the case pleaded in the Plaint as
the same clearly shows that Defendant No.4 is a quasi-partnership and that
there is a family arrangement between the parties. The pleadings in the plaint
also show that, as a result of Defendant No.4 being a quasi-partnership and
also as a result of the family arrangement, each branch of the family had a
right to participate in the management of Defendant No.4.
16. In this context, paragraph 39 of the Plaint describes the ‘family
arrangement’ as under:
“The longstanding foundational basis / oral understandings as
narrated above and broadly summarized; the MOU with its
express and implied rights and obligations which respected the
pre-existing status of the family members are hereinafter
collectively referred to as the “Family Arrangement”.
17. Para 40 of the Plaint then pleads the object of the family
arrangement and reads as follows:
“The entire object of the Family Arrangement was that each of
the branches of the Shah family would be perpetually entitled to
continue to participate in the management of the Defendant No.
4 and each of the divisions were to be run by the respective
members. The entitlement of the respective members of the family
to run their respective divisions, was therefore one of the
essential facets of the Family Arrangement. The Family
Arrangement was so structured to ensure that some of the family
members do not use their shareholding majority to interfere with
or defeat the rights of each group of the family. [This protection
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from various terms of the Family Arrangement.]”
18. The Plaint, consistent with the pleaded case of a family
arrangement as being based on oral understandings as also the MOU, gives
instances of how this family arrangement has been acted upon and from
which its existence can be inferred even prior to the execution of the MOU
dated 3rd September 2010. The factual instances, which establish the existence
of the family arrangement, as also its content, are set out with particulars in
the following paragraphs of the Plaint:
a) Paragraph 4 of the Plaint states that, in 1911, the efforts of the
forefathers of the Plaintiffs and Defendant Nos.1 to 3 led to the expansion of
the family business.
b) Paragraphs 7 and 8 of the Plaint state that, in 1943, Gokaldas passed
away. After Gokaldas’ demise, disputes arose between Amichand and
Vithaldas with Amichand insisting that Gokaldas’ share be divided between
Amichand and Vithaldas. Vithaldas resisted it since he wanted Gokaldas’
share to devolve on his widow – Bai Mangubai and their children, namely,
Jagmohandas and Rameshchandra. To this end, Vithaldas contested Suit No.
37 of 1948 before this Court and after great perseverance raised finances to
purchase the firm altogether. This culminated in an oral understanding
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appl30581-23.docbetween Vithaldas and Bai Mangubai and showed the intention of Vithaldas
to ensure that the family benefits from the family businesses.
c) Paragraph 10 of the Plaint states that, on 16 th December 1948, Lallubhai
Amichand ceased to be a partnership, and was incorporated as a company
under the Companies Act, 1913, on the aforesaid understanding, with the
families of Gokaldas and Vithaldas being the principal shareholders.
d) Paragraph 13 states that Defendant No.4 is, from inception, a family
company established to be nothing but quasi-partnership, as evident from the
understanding between Vithaldas and Bai Mangubai However, considering
the seniority of Vithaldas, he was made a permanent Managing Director. But
considering that Vithaldas was heirless, the business would automatically
devolve on Jagmohandas and Ramchandra.
e) Paragraph 15 of the Plaint states that whilst Mangubai was made a
Director in Defendant No.4, once her children i.e. Jagmohandas and
Rameshchandra became adults, the share of their mother was transferred to
them, they became directors and looked after sales and manufacturing
respectively.
f) Paragraph 16 states that, whilst it was understood that Jagmohandas
and Rameshchandra would sustain the family through the family business,
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the expenses were met from a common pool of funds on the basis that they
were equal, and both the families even resided together until 1965 when they
all moved to a new apartment.
g) Paragraph 17 states that in line with the understanding, several
expenses were paid for by Defendant No.4. For instance, Rameshchandra’s
expenses for staying in Switzerland in 1960 were paid for by Defendant No.4.
h) Paragraph 22 then states that, in 1984, Vithaldas passed away.
Thereafter in 1984 and 1988 respectively Jagmohandas and Rameshchandra
passed away.
i) Paragraph 24 then points out that Defendant No.1 was appointed as a
Director on 1st January 1984. Plaintiff No.1 was appointed as a Director on 2 nd
June 1984 and his real brother Harshad (Defendant No.9) was appointed as a
Director on 5th July 1984. Defendant No.3 was appointed as a Director on 1 st
January 1990. Sanjiv, father of Defendant No.2, was appointed as a Director
on 5th June 2002 along with Plaintiff No.1’s other real brother Ketan
(Defendant No.8).
j) Paragraph 25 of the Plaint shows that the Jagmohandas branch and the
Rameshchandra branch had equal representation in the interests, control and
management of Defendant No.4 and its group entities.
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k) Paragraph 26 of the Plaint summarizes, based on material particulars
stated in the previous paragraphs, the salient features of the foundational
basis and oral understanding. Central to the functioning of the foundational
basis of the understanding was a right to participate in the management of the
family business through Defendant No.4 and its group companies.
l) The Plaintiff further and specifically pleads the existence of a quasi-
partnership and the understanding between the quasi partners, which
included the understanding in respect of the right to participate in
management and functional autonomy in respect of the various units or
divisions that were allocated to the administration of different members of the
family. This is then expanded in paragraphs 27 to 29 of the Plaint.
m) The understanding of the Defendant No.4 being a quasi-partnership
further extended to the family / companies dealing in properties and these
instances have been illustrated in paragraphs 30 to 32 of the Plaint.
n) Paragraphs 36 to 38 of the Plaint refer to the MOU dated 3 rd September
2010. Paragraph 38 indicates the salient features of MOU.
o) The Plaint then pleads the steps taken after the MOU and in
furtherance of the implementation of the family arrangement. These are
indicated in paragraphs 42, 43, 44 and 46 of the Plaint.
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19. Further, the fact that Defendant No.4 is a quasi-partnership /
family company is not a matter in dispute. This is because the status of
Defendant No.4 being a quasi-partnership is explicitly admitted by Defendant
No.4 in its Plaint in Commercial IP Suit No.177 of 2023. The relevant
admissions in paragraphs 41, 42 and 44 as to this fact are as under:
“41. In any case, considering the understanding between
the parties, Plaintiff Company being a closely held family
business, led by family members, operating with underlying trust
as that in a partnership. It is also wholly owned by the ‘Shah’
family. As per the hereditary family business arrangement,
Plaintiff Company is operated, managed, and run nothing as
quasi partnership and its true nature/character is that of a quasi
partnership arrangement between the four directors Sunil,
Paresh, Sanjiv and Dhiren Shah. Further, the office of a director
in the Plaintiff Company, as per the AOA, is permanent in nature
(subject only to certain circumstances under which a director’s
office must be vacated), which once again points to the quasi-
partnership functioning of the Plaintiff Company.
42. As such, as per the settled law established by Courts in India,
the principles of partnership would be applicable to the Plaintiff
Company. Accordingly, considering the scope and purpose and
object of partnerships and/or of joint ventures, there is equitable
duty on Defendant Nos. 2 and 3, a partner or other person not to
compete with the business of such partnership/company…..
44. Further, considering the understanding between the parties,
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Shah.”
(emphasis supplied)
20. Further paragraph 13 of the plaint in IP Suit also shows the
quasi-partnership nature of the business and reads as under:
“13. Plaintiff says and submits that, since its inception in 1911,
Plaintiff Company has been operated and managed by members
of the family and the roles and responsibilities assigned to each
member of the family was based on mutual trust and faith
reposed in each other. It was always the belief and understanding
that, they would work towards the common objective of
furthering the business interest of the Plaintiff Company.”
(emphasis supplied)
21. Therefore, even according to the Defendants, Defendant No.4 is a
quasi-partnership, being in the nature of a family business, to which
principles recognized under Indian law akin to partnership principles are
applicable and as a part of which quasi-partnership understanding directors
are permanent directors subject only to the office of the directorship being
vacated under Article 144 of the Articles of Association.
22. Further, the family arrangement described in detail in the plaint
is also referred to in the Interim Application in the present Suit. The
Defendants filed a Limited Affidavit to oppose the ad-interim reliefs, affirmed
on 29th August 2023, of Saloni Shah (Defendant No.2). Saloni Shah is the
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daughter of Sanjiv Shah. She is 33 years of age and, therefore, would
obviously have no knowledge of the various particulars which have been
pleaded in the Plaint to support and buttress the family arrangement as it
existed before the MOU dated 3 rd September 2010 and limited knowledge in
respect of the particulars pleaded in the Plaint and the Interim Application to
show how the MOU, as an aspect of the family arrangement, was acted upon
after its execution.
23. Paragraph 35 of the said Limited Affidavit, at paragraphs 35.2
and 35.3, proceeds virtually on the basis of a bare denial of the family
arrangement. Properly read, it is not even so much a denial of the family
arrangement in the sense of a right to participate in management through
board representation but more a denial of there being any family arrangement
which recognizes Plaintiff No. 1 having exclusive management and control of
Defendant No. 4’s export division. This is reiterated in paragraph 35.8 and the
thrust of the denial is in respect of any exclusive management and control
over the Aluminium and Stainless Steel Export Division. In paragraph 35.9
(which answers paragraph 6 of the Interim Application), there is no denial to
Defendant No. 4 being a family company and a quasi-partnership. The denial
is qualified only to the extent of it being incumbent that the family
arrangement would be given effect to by restoration of status-quo ante.
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24. The aforesaid shows that, as regards the family arrangement that
is extensively pleaded in the Plaint, showcasing events that occurred much
prior to the MOU and for several years (which has been extensively set out
hereinabove), there is no effective denial in the said Limited Affidavit filed on
behalf of Defendant No.4.
25. Further, the pleading of the Defendants in the IP Suit, to the
extent there is a quasi-partnership and a family company with a permanent
right of directorship and referencing Plaintiff No.1’s control over the Export
Division, are all consistent with the particulars that have been set out in the
Plaint of conduct prior to the MOU.
26. In these circumstances, in our view, at the ad-interim stage, a
more than prima facie case has been made out not only as to Defendant No.4
being a quasi-partnership and a family company, but also that the contents of
the family arrangement and MOU dated 3 rd September, 2010, which existed in
respect of this quasi-partnership, very much included a right to participate in
the management of Defendant No. 4. Further, a prima-facie case is also made
out that, in the administration of the affairs of Defendant No.4, each branch
had charge or control over a specific division of the Company. However,
obviously, the right to participate in the management of Defendant No. 4 is
manifested by board representation.
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27. As far as MOU dated 3rd September, 2010 is concerned, the
following recitals and operative clauses are relevant and are set out here
under:
“Rectials
WHEREAS:-
….
8. Consequent upon such settlements, the Parties have arrived at
a family settlement and have in pursuance thereof agreed to
reconstitute and re-organize their financial and commercial
affairs, whereby the party of the First Part along with the
members of the respective branches have agreed to severe all
their interest, holdings association and connection in the Parties
of the Sixth to Eleventh Parts, and the Party of the Fifth part has
agreed to take over all the said parties of the First part and Fifth
part and the Companies and entities hithertofore held and
controlled by them, have agreed to take over the same, on the
understanding, terms, conditions and covenants mutually agreed.
The Parties hereto are desirous of recording the said family
Arrangement as hereinafter appearing.
Each of the parties hereto agree and declare that he/she is
entering into this Memorandum of Understanding recording the
arrangement on his/her own behalf, on behalf of his respective
family members and each of the parties hereto represents to the
others that he/she has the authority from his family members to
enter into and execute on their behalf this Memorandum of
Undertaking. Accordingly, the arrangement arrived at as
recorded herein is binding also on the other family members,
their heirs, executors and administrators.
…
Operative clauses
1. The recitals hereinabove shall be treated as and shall form
part and parcel of the operative part, as if the same were set out
and reproduced, verbatim.
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5. The Party of the First Part and the members of their respective
families shall transfer their complete shareholding in the Parties
of the Sixth to Eleventh parts and shall resign as Directors
therein, so as to ensure full management and control thereof and
each of them by the party of the Fifth Part. The transfer of shares
shall be made as particular set out in Annexure “8” hereto.
6. The Party of the First Part shall also resign as the Executives
of the Party of the Seventh Part.
10………It is agreed clarified and confirmed that on and from the
execution of this MOU the parties of 5th to 11th part and/or their
immediate family members and/or their nominees, shall have no
right of participation in the management of Sincere Realty Pvt.
Ltd. and shall have no share holding in the said Sincere Realty
Pol. Ltd., and shall not be entitled to claim their rights in the
properties and assets of the said Sincere Realty Pvt. Ltd.,
…
12. To effectuate the aforesaid, if required Board Meetings and
Extraordinary General Body Meetings of all the Companies will
have to be held in which Unanimous Resolutions required to put
into effect the aforesaid, shall be passed and which may include
Amendment of Memorandum and Articles of Association.
…
13. If any claims are made by any female Member claiming
rights to the said larger G. H. HUF, the same shall be jointly
dealt with and all liabilities if any incurred thereunder, shall be
shared by both Groups viz., namely First and Fifth Parts i.e.
each member in both the parts will be equally responsible.
14. As regards Partitions of the smaller HUFs, which also are
effective as of 01.04.2010, if any claims are made by any female
Members, the same will be dealt with and satisfied by the
concerned Group i.e. J. G. HUF and R.G. HUF of which such
female is a Member, and such HUFs shall indemnify the other
HUF against such liability. Appropriate Deeds of Partition will
be executed.
15. The provisions hereinabove shall be given effect to and
implemented by execution of papers, documents and writings and
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as far as possible the same shall be done simultaneously within
the period of one month from the date hereof, time being of the
essence.
18. It is agreed, clarified and confirmed that at no stage
hereafter, the Party of the First and/or any immediate members
of their respective families shall have any right of participation
in the management of any of the Companies being Parties of the
Sixth to Eleventh parts and in any of which, from and after the
date of execution hereof, they do not shall not have any
Shareholding. If however, at any time hereafter, any of the
Parties of the First Part and/or the immediate members their
respective families become entitled to any Shares of the party of
the Sixth Part consequent upon transfer and/or inheritance
and/or bequest of any Shares by Smt. Sushila Jagmohandas
Shah, being Party of the Twelth (A) Part, the said Shri Sunil
Jagmohandas Shah of the Party of the Fifth Part, shall have the
first right and option to transfer the same for himself and/or his
Nominees, such Shares or any of them at a negotiated price to be
mutually agreed upon or in default at the price to be determined
by the Statutory Auditors of the said Company on the basis of its
fair market value & until refusal by the said Shri Sunil of the
Party of the Fifth Part, neither the said Smt. Sushila
Jagmohandas Shah for such purchase, nor any Transferee
thereof by way of inheritance or bequest, shall be entitled to
transfer the same in favour of anyone else. It is also agreed
clarified and confirmed that the said Smt. Sushila Jagmohandas
Shah during her lifetime shall not be entitled to transfer the said
Shares, to anyone expect the said Shri Sunil Jagmohandas Shah
of the Party of the Fifth Part as stated above.
19. The parties hereto hereby agree and declare that this
settlement is executed as an arrangement as recited hereinabove
and that the terms of the terms of the arrangement arrived at
between them and recorded herein are fair, bona fide and in the
interest of all the Parties hereto and shall not be questioned or
challenged by any one of them on any ground whatsoever.
20. It is agreed that this settlement of compromise is arrived at
on the footing that the parties hereto had rights and interest in
various business concerns, properties and related matters set out
herein and this settlement is a bona fide settlement of conflicting
claims in respect of such various business concerns, properties
and related matters setout herein.
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28. As is evident, the MOU has been executed separately by
Defendant No. 4. Whilst the MOU envisaged that the Articles of Association
of Defendant No.4 may be amended so as to incorporate the MOU, it was not,
in the language of the MOU, mandatory.
29. Further, the MOU is clearly in the nature of a family arrangement
which was entered into by the family members and their companies to
“reconstitute and re-organize their financial and commercial affairs” as stated
in Recital 8 and was not only limited to the exit of Ketan and Harshad.
30. Further, clause 5 of the MOU provides that the party of the First
Part and the members of their respective families shall transfer their complete
share holding in the parties of the Sixth to Eleventh Parts and shall resign as
directors therein, so as to ensure “full management and control” thereof in
each of them by the party of the Fifth Part. Thus, clause 5 gives full
management and control of the parties of the Sixth to Eleventh Parts and in
each of them to the party of the Fifth Part. The party of the Sixth Part is
Defendant No. 4. Therefore clause 5 of the MOU gives full management and
control of Defendant No.4 to the party of the Fifth Part. The party of the Fifth
Part includes Plaintiff No.1, and therefore, right has been given under the
MOU even to Plaintiff No.1 to be in management and control of Defendant
No. 4.
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31. Another important feature that appears throughout the MOU is
that the MOU binds not only the family members who have signed the MOU
but their heirs, executors, administrators and members of their respective
family units. This appears for example in Recital 8 and in the description of
the parties. This is significant because it underscores and reiterates the real
nature of Defendant No.4 and of the understanding and that it recognizes that
this understanding is so fundamental and implicit that it would extend even
to those who are not formally a party to the MOU, both in terms of the rights
that it creates as also in terms of the obligations that it casts. So much so, that
it would apply and extend even to the heirs of the family members who have
signed the MOU.
32. The relevance of the MOU in the overall scheme of grant of ad-
interim reliefs has been considered by the Learned Single Judge in various
paragraphs of the impugned Order dated 25 th October, 2023. More
specifically the MOU/ family arrangement has been referred to in paragraphs
5 to 7 and 16 to 27. The discussion and the findings as also a connection
between this issue and the ultimate relief that was granted is to be found
starting from paragraph 16 of the said Order. The Learned Single Judge has
very rightly referred to the historical facts which have been mentioned above,
as part of the pleadings. This appears in paragraphs 18 to 21 of the said Order.
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In paragraphs 22 and 23, the Learned Single Judge makes a reference to the
MOU and the manner in which it was implemented as contended by Plaintiff
No. 1.
33. The findings rendered by the Learned Single Judge in this regard
are primarily in paragraphs 25 to 27, read with paragraphs 57 and 61 of the
Order dated 25th October, 2023. Paragraphs 25,26, and 27 read as under:
“25. It is true that the Company has not disputed about the family
business. And even not disputed about execution of MoU. In the
affidavit in reply filed by Defendant No.4, they have adopted the
pleadings in Intellectual Properties Suit. Whereas, in Intellectual
Properties Suit, present Defendant No.4 who is the Plaintiff have
admitted about MoU but objected about its relevancy. So, on the
basis of these circumstances, we can certainly infer that the
business is a family business. It is also a fact that earlier it was
run on partnership basis and in the year 1948, the firm was
converted into a Limited Company. There are various subsidiary
companies of Defendant No.4, who is the parent Company. There
are also instances wherein after the death of a director, his heir
was made as a director. If we see the transfer of shares after
exiting by Defendant No.8 and Defendant No.9, every member
from broadly two groups gets at least 17% shareholding. Even
the services of employees of Defendant No.4 were availed for the
working of other subsidiary companies. So, it indicates that
every branch gets representation in the functioning of the
Company.
26. During hearing of the arguments, two principles have
evolved :-
a. It is in respect of the terms of ‘Family Arrangement’ whether in
consonance with the provisions of Company Act and statutory
documents and what will be the effect of provisions of Section 6
of 2013 Act.
b. Second principle is whether the Articles of Association are
really amended so as to bring them in tune with the provisions of
‘Family Arrangement’.
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27. When we apply the principles enunciated above to the facts
before us, we may find that case of the Plaintiff is about ‘Family
Arrangement’ on the basis of various events and conduct of the
parties and as recorded in the MoU. It is a matter of record that
Defendant No.4 was a party to the said MoU. I do not think that
merely because non shareholders of the Company are party to
that MoU and it deals with various subjects as contended by
Mr.Andhyarujina, it cannot be acted upon. In earlier part of the
order, I have narrated those events and contents of MoU on the
basis of which, it can be said that there was a ‘Family
Arrangement’ thereby giving protection to Plaintiff No.1. I do not
think that merely because Article of Association is not amended,
the ‘Family Arrangement’ cannot be implemented. Because the
Company is a party to it.”
34. In our view, the Learned Single Judge has taken a correct view,
or, at the very least, a very possible view, on a prima-facie appreciation of all
the facts and factors, to conclude that every branch gets representation in the
functioning of the Defendant No.4. The Learned Single Judge has also prima-
facie held, by reference to the MOU, that there was a family arrangement,
thereby giving protection to Plaintiff No.1. Having rightly come to the prima
facie conclusion as to the family arrangement and the right to participate in
the management arising from that, the Learned Single Judge had to consider
whether this right was taken away justifiably, atleast prima-facie, at the time
when it was done and the manner in which it was done.
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35. In other words, the relevance of the MOU and the family
arrangement is that such an important right cannot, without good cause, be
taken away because the Defendant Nos. 1 to 3 have the numerical majority to
oust or remove Plaintiff No. 1 as a director, and in doing so, repudiate the
relationships that exist as between them in their capacity as partners in a
quasi-partnership as also in the capacity of family members who have signed
the MOU, which is a family understanding or a family arrangement. The
argument that has been accepted by the Learned Single Judge is that there is
an important and a valuable right, and, in the circumstances of the case,
especially after the ex-parte order dated 5 th April, 2023 had been vacated, this
valuable right emanating from the MOU or the family arrangement, more
generally, must be preserved or protected at the ad-interim stage. This could
only be done by the grant of the mandatory order of injunction to reinstate
Plaintiff No.1 as a director so as to continue the status he enjoyed under the
family arrangement, as a quasi-partner, and under the MOU, as interpreted
by the Learned Single Judge in the Order dated 25th October, 2023.
36. We are therefore of the view that the Learned Single Judge was
right in granting the mandatory injunction reinstating Plaintiff No.1 as a
director on the basis of the family arrangement, the MOU and on the basis
that Defendant No.4 is a quasi-partnership.
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37. Whilst considering these aspects of the matter regarding family
arrangement and quasi-partnership, it would be appropriate to refer to the
law laid down on these subjects.
38. It is well settled that family arrangements are entitled to special
equities in law and Courts have time and again leaned in favour of upholding
family arrangements. The parties to the family arrangement who have acted
in consonance with such understandings have not been permitted thereafter,
to resile from them. Paragraphs 9 and 10 of the Judgement of the Hon’ble
Supreme Court in Kale and Others vs. Deputy Director of Consolidation and
Ors. (1976) 3 SCC 119 are relevant in this regard and are set out hereunder:
“9. Before dealing with the respective contentions put forward by
the parties, we would like to discuss in general the effect and
value of family arrangements entered into between the parties
with a view to resolving disputes once for all. By virtue of a
family settlement or arrangement members of a family
descending from a common ancestor or a near relation seek to
sink their differences and disputes, settle and resolve their
conflicting claims or disputed titles once for all in order to buy
peace of mind and bring about complete harmony and goodwill
in the family. The family arrangements are governed by a special
equity peculiar to themselves and would be enforced if honestly
made. In this connection, Kerr in his valuable treatise Kerr on
Fraud at p. 364 makes the following pertinent observations
regarding the nature of the family arrangement which may be
extracted thus :
“The principles which apply to the case of ordinary
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appl30581-23.doccompromise between strangers do not equally apply to the
case of compromises in the nature of family arrangements.
Family arrangements are governed by a special equity
peculiar to themselves, and will be enforced if honestly made,
although they have not been meant as a compromise, but have
proceeded from an error of all parties, originating in mistake
or ignorance of fact as to what their rights actually are, or of
the points on which their rights actually depend.”
The object of the arrangement is to protect the family from long-
drawn litigation or perpetual strifes which mar the unity and
solidarity of the family and create hatred and bad blood between
the various members of the family. Today when we are striving to
build up an egalitarian society and are trying for a complete
reconstruction of the society, to maintain and uphold the unity
and homogeneity of the family which ultimately results in the
unification of the society and, therefore, of the entire country, is
the prime need of the hour. A family arrangement by which the
property is equitably divided between the various contenders so
as to achieve an equal distribution of wealth instead of
concentrating the same in the hands of a few is undoubtedly a
milestone in the administration of social justice. That is why the
term “family” has to be understood in a wider sense so as to
include within its fold not only close relations or legal heirs but
even those persons who may have some sort of ante-cedent title,
a semblance of a claim or even if they have a spes successionis
so that future disputes are sealed for ever and the family instead
of fighting claims inter se and wasting time, money and energy
on such fruitless or futile litigation is able to devote its attention
to more constructive work in the larger interest of the country.
The Courts have, therefore, leaned in favour of upholding a
family arrangement instead of disturbing the same on technical
or trivial grounds. Where the Courts find that the family
arrangement suffers from a legal lacuna or a formal defect the
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rule of estoppel is pressed into service and is applied to shut out
plea of the person who being a party to family arrangement
seeks to unsettle a settled dispute and claims to revoke the family
arrangement under which he has himself enjoyed some material
benefits. The law in England on this point is almost the same. In
Halsbury’s Laws of England, Vol. 17, Third Edition, at pp. 215-
216, the following apt observations regarding the essentials of
the family settlement and the principles governing the existence
of the same are made:
A family arrangement is an agreement between members of
the same family, intended to be generally and reasonably for
the benefit of the family either by compromising doubtful or
disputed rights or by preserving the family property or the
peace and security of the family by avoiding litigation or by
saving its honour.
The agreement may be implied from a long course of dealing,
but it is more usual to embody or to effectuate the agreement
in a deed to which the term “family arrangement” is applied.
Family arrangements are governed by principles which are
not applicable to dealings between strangers. The Court,
when deciding the rights of parties under family
arrangements or claims to upset such arrangements,
considers what in the broadest view of the matter is most for
the interest of families, and has regard to considerations
which, in dealing with transactions between persons not
members of the same family, would not be taken into account.
Matters which would be fatal to the validity of similar
transactions between strangers are not objections to the
binding effect of family arrangements.
10. In other words to put the binding effect and the essentials of
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appl30581-23.doca family settlement in a concretised form, the matter may be
reduced into the form of the following propositions:
(1) The family settlement must be a bona fide one so as to
resolve family disputes and rival claims by a fair and
equitable division or allotment of properties between the
various members of the family;
(2) The said settlement must be voluntary and should not be
induced by fraud, coercion or undue influence;
(3) The family arrangement may be even oral in which case
no registration is necessary:
(4) It is well-settled that registration would be necessary only
if the terms of the family arrangement are reduced into
writing. Here also, a distinction should be made between a
document containing the terms and recitals of a family
arrangement made under the document and a mere
memorandum prepared after the family arrangement had
already been made either for the purpose of the record or for
information of the Court for making necessary mutation. In
such a case the memorandum itself does not create or
extinguish any rights in immovable properties and therefore
does not fall within the mischief of Section 17(2) of the
Registration Act and is, therefore, not compulsorily
registrable;
(5) The members who may be parties to the family
arrangement must have some antecedent title, claim or
interest even a possible claim in the property which is
acknowledged by the parties to the settlement. Even if one of
the parties to the settlement has no title but under the
arrangement the other party relinquishes all its claims or
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appl30581-23.doctitles in favour of such a person and acknowledges him to be
the sole owner, then the antecedent title must be assumed and
the family arrangement will be upheld and the Courts will
find no difficulty in giving assent to the same;
(6) Even if bona fide disputes, present or possible, which may
not involve legal claims are settled by a bona fide family
arrangement which is fair and equitable the family
arrangement is final and binding on the parties to the
settlement.”
39. In Dinesh Gupta and Ors. vs. Rajesh Gupta and Ors. (2018) SCC
OnLine Del 21387, a declaration was sought to declare notices issued under
Section 100 of the Companies Act, 2013 as null and void and an injunction to
restrain the Defendants from acting contrary to the family settlement. On the
question of jurisdiction, the Delhi High Court held that the suit was
maintainable as it pertains to a family settlement which has always been
accorded a high sanctity as held in Kale and Others (supra). The Court also
granted a stay of a resolution seeking to remove the director, as being
contrary to a family settlement.
40. Ebrahimi vs. Westbourne Galleries Ltd. (1972) 2 ALL ER 492
was a case of just and equitable winding up. The dispute arose out of an
ordinary resolution passed by the majority of shareholders (Mr.Nazar and
Mr.George Nazar) to remove the third shareholder Mr.Ebrahimi from the
directorship of the Company Westbourne Galleries Ltd. The aggrieved
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shareholder invoked the principles of quasi-partnership to contend that
because the Company was in its true nature and character a quasi-
partnership, or akin to a partnership, the majority could not have used their
shareholder strength to remove him as a director or to interfere with his right
to participate in the management of the Company as a director. The trial
Court allowed winding up. This was reversed by the Court of Appeal. The
House of Lords reversed the Court of Appeal’s Judgement and restored the
order of winding up. The following portions of the said judgement are
relevant and are set out hereunder.
“In Re Wondoflex Textiles Pvt. Ltd. [1951] V.L.R. 458 was a case
where again the company was held to resemble a partnership. The
petitioner, owner of a quarter share, was removed from office as
director by the governing director exercising powers under the
articles. Thus the issue, and the argument, closely resembled those in
the present case. The judgment of Smith J. contains the following
passage:
‘It is also true, I think, that, generally speaking, a petition for
winding up, based upon the partnership analogy, cannot succeed if
what is complained of is merely a valid exercise of powers
conferred in terms by the articles: … To hold otherwise would
enable a member to be relieved from the consequences of a bargain
knowingly entered into by him: … But this, I think, is subject to an
important qualification. Acts which, in law, are a valid exercise of
powers conferred by the articles may nevertheless be entirely
outside what can fairly be regarded as having been in the
contemplation of the parties when they became members of the
company; and in such cases the fact that what has been done is not
in excess of power will not necessarily be an answer to a claim for
winding up. Indeed, it may be said that one purpose of [the just and
equitable provision] is to enable the Court to relieve a party from
his bargain in such cases.’Page 89 of 143
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appl30581-23.docThe whole judgment is of value. In New Zealand, the Court of Appeal
has endorsed the potential application of the principle to exclusion
cases: Tench v. Tench Bros. Ltd. [1930] N.Z.L.R. 403; see also In re
Modern Retreading Co. Ltd. [1962] E.A. 57, also a case of exclusion
from management, and cf. In re Sydney and Whitney Pier Bus Service
Ltd. [1944] 3 D.L.R. 468 and In re Concrete Column Clamps Ltd.
[1953] 4 D.L.R. 60 (Quebec).
My Lords, in my opinion these authorities represent a sound and
rational development of the law which should be endorsed. The
foundation of it all lies in the words ‘just and equitable’ and, if there is
any respect in which some of the cases may be open to criticism, it is
that the Courts may sometimes have been too timorous in giving them
full force. The words are a recognition of the fact that a limited
company is more than a mere legal entity, with a personality in law of
its own: that there is room in company law for recognition of the fact
that behind it, or amongst it, there are individuals, with rights,
expectations and obligations inter se which are not necessarily
submerged in the company structure. That structure is defined by the
Companies Act 1948 and by the articles of association by which
shareholders agree to be bound. In most companies and in most
contexts, this definition is sufficient and exhaustive, equally so whether
the company is large or small. The ‘just and equitable’ provision does
not, as the respondents suggest, entitle one party to disregard the
obligation he assumes by entering a company, nor the Court to
dispense him from it. It does, as equity always does, enable the Court
to subject the exercise of legal rights to equitable considerations;
considerations, that is, of a personal character arising between one
individual and another, which may make it unjust, or inequitable, to
insist on legal rights, or to exercise them in a particular way.
It would be impossible, and wholly undesirable, to define the
circumstances in which these considerations may arise. Certainly the
fact that a company is a small one, or a private company, is not
enough. There are very many of these where the association is a purely
commercial one, of which it can safely be said that the basis of
association is adequately and exhaustively laid down in the articles.
The superimposition of equitable considerations requires something
more, which typically may include one, or probably more, of the
following elements: (i) an association formed or continued on the basis
of a personal relationship, involving mutual confidence – this element
will often be found where a pre-existing partnership has been
converted into a limited company; (ii) an agreement, or understanding,
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appl30581-23.docthat all, or some (for there may be ‘sleeping’ members), of the
shareholders shall participate in the conduct of the business; (iii)
restriction upon the transfer of the members’ interest in the company –
so that if confidence is lost, or one member is removed from
management, he cannot take out his stake and go elsewhere.
It is these, and analogous, factors which may bring into play the just
and equitable clause, and they do so directly, through the force of the
words themselves. To refer, as so many of the cases do, to ‘quasi-
partnerships’ or ‘in substance partnerships’ may be convenient but may
also be confusing. It may be convenient because it is the law of
partnership which has developed the conceptions of probity, good faith
and mutual confidence, and the remedies where these are absent,
which become relevant once such factors as I have mentioned are
found to exist: the words ‘just and equitable’ sum these up in the law of
partnership itself. and in many, but not necessarily all, cases there has
been a pre-existing partnership the obligations of which it is
reasonable to suppose continue to underlie the new company structure.
But the expressions may be confusing if they obscure, or deny, the fact
that the parties (possibly former partners) are now co-members in a
company, who have accepted, in law, new obligations. A company,
however small, however domestic, is a company not a partnership or
even a quasi-partnership and it is through the just and equitable clause
that obligations, common to partnership relations, may come in.
My Lords, this is an expulsion case, and I must briefly justify the
application in such cases of the just and equitable clause. The question
is, as always, whether it is equitable to allow one (or two) to make use
of his legal rights to the prejudice of his associate(s). The law of
companies recognises the right, in many ways, to remove a director
from the board. Section 184 of the Companies Act 1948 confers this
right upon the company in general meeting whatever the articles may
say. Some articles may prescribe other methods: for example, a
governing director may have the power to remove (compare In re
Wondoflex Textiles Pty. Ltd. [1951] V.L.R. 458 ). And quite apart from
removal powers, there are normally provisions for retirement of
directors by rotation so that their re-election can be opposed and
defeated by a majority, or even by a casting vote. In all these ways a
particular director-member may find himself no longer a director,
through removal, or non-re-election: this situation he must normally
accept, unless he undertakes the burden of proving fraud or mala fides.
The just and equitable provision nevertheless comes to his assistance if
he can point to, and prove, some special underlying obligation of his
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appl30581-23.docfellow member(s) in good faith, or confidence, that so long as the
business continues he shall be entitled to management participation,
an obligation so basic that, if broken, the conclusion must be that the
association must be dissolved and the principles on which he may do
so are those worked out by the Courts in partnership cases where there
has been exclusion from management (see Const. v. Harris (1824) Tur.
& Rus. 496, 525) even where under the partnership agreement there is
a power of expulsion (see Blisset v. Daniel (1853) 10 Hare 493;
Lindley on Partnership, 13th ed. (1971), pp. 331, 595).
I come to the facts of this case. It is apparent enough that a potential
basis for a winding up order under the just and equitable clause
existed. The appellant after a long association in partnership, during
which he had an equal share in the management, joined in the
formation of the company. The inference must be indisputable that he,
and Mr. Nazar, did so on the basis that the character of the association
would, as a matter of personal relation and good faith, remain the
same. He was removed from his directorship under a power valid in
law. Did he establish a case which, If he had remained in a partnership
with a term providing for expulsion, would have justified an order for
dissolution? This was the essential question for the judge. Plowman J.
dealt with the issue in a brief paragraph in which he said [1970] 1
W.L.R. 1378, 1389: ‘… while no doubt the petitioner was lawfully removed, in the sense
that he ceased in law to be a director, it does not follow that in
removing him the respondents did not do him a wrong. In my
judgment, they did do him a wrong, in the sense that it was an
abuse of power and a breach of the good faith which partners owe
to each other to exclude one of them from all participation in the
business upon which they have embarked on the basis that all
should participate in its management. The main justification put
forward for removing him was that he was perpetually complaining,
but the faults were not all on one side and, in my judgment, this is
not sufficient justification. For these reasons, in my judgment, the
petitioner, therefore, has made out a case for a winding up order.’Reading this in the context of the judgment as a whole, which had dealt
with the specific complaints of one side against the other, I take it as a
finding that the respondents were not entitled, in justice and equity, to
make use of their legal powers of expulsion and that, in accordance
with the principles of such cases as Blisset v. Daniel, 10 Hare 493 , the
only just and equitable course was to dissolve the association. To my
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appl30581-23.docmind, two factors strongly support this. First, Mr. Nazar made it
perfectly clear that he did not regard Mr. Ebrahimi as a partner, but
did regard him as an employee. But there was no possible doubt as to
Mr. Ebrahimi’s status throughout, so that Mr. Nazar’s refusal to
recognise it amounted, in effect, to a repudiation of the relationship.
Secondly, Mr. Ebrahimi, through ceasing to be a director, lost his right
to share in the profits through directors’ remuneration, retaining only
the chance of receiving dividends as a minority shareholder. It is true
that an assurance was given in evidence that the previous practice (of
not paying dividends) would not be continued, but the fact remains that
Mr. Ebrahimi was henceforth at the mercy of the Messrs. Nazar as to
what he should receive out of the profits and when. He was, moreover,
unable to dispose of his interest without the consent of the Nazars. All
these matters lead only to the conclusion that the right course was to
dissolve the association by winding up.”
(emphasis supplied)
41. ‘O’Neill vs. Philips (1999) 2 ALL ER 961 (HL) is another decision
of the House of Lords on the principle of quasi-partnership. Whilst, in the
ultimate analysis, the House of Lords came to the factual determination that
the promises relied upon the aggrieved shareholders were not established, the
judgement nevertheless laid down principles in the context of the quasi-
partnerships, its meaning and its importance. It makes reference to the prior
leading authorities on the subject. After reference to these judgements, the
House of Lords discusses the features of a quasi-partnership company as
follows:-
“….In a quasi partnership company, they will usually be found in the
understandings between the members at the time they entered into
association. But there may be later promises, by words or conduct,
which it would be unfair to allow a member to ignore. Nor is it
necessary that such promises should be independently enforceable as a
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appl30581-23.docmatter of contract. A promise may be binding as a matter of justice and
equity although for one reason or another (for example, because
in favour of a third party) it would not be enforceable in law.”
(Emphasis supplied)
42. Significant in this discussion in the said judgement is the fact
that is refers to an understanding between the members at the time they
entered into the association but also that there may be later promises by
words or conduct which would be unfair to allow a member to ignore, nor is it
necessary that such promises should be independently enforceable as a
matter of contract. A promise may be binding as the matter of justice and
equity although for one reason or another, for example, because it is in favour
of a third party, it would not be enforceable in law.
43. The judgements of ‘O’Neill (supra) and Ebrahimi (supra) have
been referred to in various Indian decisions rendered by the Hon’ble Supreme
Court, by High Courts and also by the Company Law Board / NCLT. In
Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad (2005) 11 SCC 314, which
which arose out of an action for oppression and mismanagement, the Hon’ble
Supreme Court had occasion to discuss quasi-partnerships. In this context,
the Hon’ble Supreme Court referred to the decision of Kapila Hingorani vs.
State of Bihar (2003) 6 SCC 1, which recognized as a form of ‘family
company’, a private company and a public limited company. It further went
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on to recognize that the principles of quasi partnership are not foreign to the
concept of the Companies Act and that, for the purposes of grant of relief, the
principles of partnership have been applied even in a public limited company.
In discussing the judgement in the case of Kilpest (P) Ltd. v. Shekhar Mehta,
the Hon’ble Supreme Court stated that the real character of the Company as
noticed hereinbefore for the purposes of dealings between the parties and the
transactions which are impure may assume significance and in such an event
the principles of quasi-partnership in a given case may be invoked and this is
also reiterated when discussing the Supreme Court Judgement in the case of
Needle Industries, where the Supreme Court states that the true character of
the company and other relevant factors shall be considered for the purpose of
grant of relief. Whilst these observations were made by the Hon’ble Supreme
Court in a matter arising from a Petition under oppression and mis-
management, the notion, that it is important to take into account the real
character of the Company as being a quasi-partnership to judge the dealings
between its members, is an observation or a notion which is clearly universal
and by no means is restricted only to the invocation of quasi-partnership in
the context of an oppression and mismanagement petition. It could apply
clearly in any case, especially one where there is a admittedly a quasi-
partnership in existence as between the parties.
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44. In Hind Overseas v. Raghunath Prasad Jhunjhunwala, (1976) 3
SCC 259, the Hon’ble Supreme Court was primarily concerned with the test
for determining whether a company can be regarded as a quasi-partnership.
This is not an aspect which is of any importance in the present matter because
of the admissions as between the parties that Defendant No.4 is a quasi-
partnership. The said judgment is relevant because of its understanding of
the decision in the case of Ebrahimi (supra). Paragraphs 16 to 21 of the said
judgement are relevant and read as under:
“16. On the other hand, according to the appellate Court the
principles in Yenidje’s case (supra) were to the effect that if a
private company could be fairly called a partnership in the guise
of a private company then the things which might be a ground
for dissolution of a partnership will apply also in the case of a
private company and that in this connection deadlock is not
material.
The appellate Court then described the circumstances which
according to Lindley justify the dissolution of the partnership:
(1) if the partnership agreement is willfully or persistently
violated:
(2) if one partner so behaves in matters relating to the
partnership business that the other partners find it impossible
to carry on business in partnership with him:
(3) if some partners are in effect excluded from the concern;
(4) if the misconduct of one or more partners is such that the
mutual confidence which must subsist in a partnership is
destroyed;
(5) if there is a state of animosity which precludes all
reasonable hope of reconciliation and friendly cooperation:
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appl30581-23.doc(6) if it is impossible for the partners to place that confidence
in each other which each has a right to expect, provided that
the impossibility has not been caused by the persons seeking
to take advantage of it.
Having noted the above, the appellate Court held that conditions
(2), (3) and (4) were unquestionably fulfilled in this case and,
therefore allowed the application and rejected the stay
application.
17. Before we proceed further we may refer to a recent decision
of the House of Lords in Ebrahimi and Westbourne Galleries Ltd.
(briefly Ebrahimi’s case) wherein after reviewing all the earlier
cases it was held as follows:
The foundation of it all lies in the words ‘just and equitable’ and,
if there is any respect in which some of the cases may be open to
criticism, it is the the Courts may sometimes have been too
timorous in giving them full force. The words are a recognition of
the fact that a limited company is more than a mere legal entity,
with a personality in law of its own that there is room in
company law for recognition of the fact that behind it, or
amongst it there are individuals with rights, expectations and
obligations inter se which are not necessarily submerged in the
company structure. That structure is defined by the Companies
Act and by the articles of association by which shareholders
agree to be bound. In most companies and in most contexts, this
definition is sufficient and exhaustive, equally so whether the
company is large or small. The ‘just and equitable’ provision
does not, as the respondents suggest, entitle one party disregard
the obligation he assumes by entering a company, nor the Court
to dispense him from it. It does, as equity always does, enable the
Court to subject the exercise of legal rights to equitable
considerations: considerations that is of a personal character
arising between one individual and another, which may make it
unjust, or inequitable, to insist on legal rights, or to exercise
them in a particular way. The superimposition of equitable
considerations requires something more which typically may
include one or probably more of the following elements:
(i) an association formed or continued on the basis of a
personal relationship, involving mutual confidence – this
element will often be found where a pre-existing partnership
has been converted into a limited company:
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(ii) an agreement, or understanding, that all, or some (for
there may be ‘sleeping’ members), of the shareholders shall
participate in the conduct of the business:
(iii) restriction upon the transfer of the members’ interest in
the company so that if confidence is lost, or one member is
removed from management, he cannot take out his stake and
go elsewhere.
18. The respondents have laid great emphasis on the ratio of the
above decision. It is true that Section 222(f) of the English
Companies Act, 1948 which the House of Lords was considering
corresponds to Section 433 (f) of the Act. In the above decision
the House of Lords had to deal with a private limited company
consisting of three members, the petitioner therein, being one of
the three. Lord Wilberforce delivering his reasoned speech has
himself noted that it is a fact of cardinal importance that since
about 1945 the business had been carried on by the appellant
and Mr. Nazar as partners, equally sharing the management and
the profits.
It was also noticed that the company made good profits, all of
which were distributed as directors’ remuneration. No dividends
have ever been paid, before or after the petition was presented.
19. In Ebrahimi’s case (supra) the company which was first
formed by the two erstwhile partners, Ebrahimi and Nazar, was
joined by Nazar’s son, George Nazar, as the third director and
each of the two original shareholders transferred to him 100
shares so that at all material times Ebrahimi held 400 shares,
Nazar 400 shares and George Nazar 200 shares. The Nazars.
father and son, thus had a majority of the votes in general
meeting. Until the dispute all the three remained directors. Later
on an ordinary resolution was passed by the company in general
meeting by the votes of Nazar and George Nazar removing
Ebrahimi from the office of director. That led to the petition for
winding-up before the Court.
20. The following features are found in Ebrahimi’s case:
(1) There was a prior partnership between the only two
members who later on formed the company.
(2) Both the shareholders were directors sharing the profits
equally as remuneration and no dividends were declared.
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(3) One of the shareholders’ son acquired shares from his
father and from the second shareholder, Ebrahimi, and joined
the company as the third shareholder each – director with two
hundred shares (one hundred from each).
(4) After that, there was a complete ouster of Ebrahimi from
the management by the votes of the other two directors, father
and son.
(5) Although Ebrahimi was a partner, Nazar had made it
perfectly clear that he did not regard Ebrahimi as a partner
but regarded him as an employee in repudiation of Ebrahimi’s
status as well as of the relationship.
(6) Ebrahimi through ceasing to be a director lost his right to
share in the profits through directors remuneration retaining
only the chance of receiving dividends as a minority
shareholder.
Bearing in mind the above features in the case, the House of
Lords allowed the petition for winding-up by reversing the
judgment of the Court of appeal and restoring the order of
Plowman, J.
21. None of the parties questions the principles as such
adumbrated by the House of Lords in Ebrahimi’s case (supra) or
even those in the earlier Yenidje’s case (supra) and indeed these
are sound principles depending upon the nature, composition
and character of the company. The principles, good as they are,
their application in a given case or in all cases, generally,
creates problems and difficulties. The respondents’ Counsel is
well cognizant of this difficult aspect and, therefore, rests his
argument on the footing that the company is in substance a
partnership and necessarily, therefore, according to him, the
principles of partnership should be attracted.
In this case, the Court did not apply the partnership principles
because it came to a conclusion that the company in question was
not in the nature of a quasi-partnership.
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45. The Calcutta High Court in the case of Murlidhar Ratanlal
Exports Ltd. v. Bijay Kumar Kajaria (2013) SCC Online Cal 5656, made a
reference to the concept of a family company. The decision goes on to make a
reference to some of the leading judgments and proceeds to state as follows:
“In fact at this stage it is to be assumed that the platform of
this company resting on a pivot is to be kept in equilibrium.
The platform is kept in equilibrium by recognition of rights,
obligations, expectations of every family member who
constitutes a small family company and resembles a
partnership as recognized in the above case and in O’Neill’s
case and the Madras decision (supra).”
46. In Jagjit Singh Chawla v. Tirath Ram Ahuja (2001) SCC Online
CLB 27, the Principal Bench of the Company Law Board considered the
concept and principles of quasi-partnership and special understanding in
relation to a closely held family company. As an exception to the rule that a
directorial complaint cannot be entertained or agitated in a Petition for
oppression and mismanagement, it was noted that the Company Law Board
has been taking a view that the principle cannot be strictly applied in family
companies, companies with a few identifiable groups of shareholders or
companies in the nature of partnership wherein there has been active
management participation by all the groups of shareholders. In that case, the
Petitioners had invoked the principles of partnership and had sought for a
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place on the Board of the Company on the basis of active participation in the
management by all the groups of shareholders. As an exception to the rule
that a shareholder cannot demand a place in the management of the
Company, the Company Law Board observed that, in this connection, it was
worthwhile referring to the case Vijay Krishnan Jaidka vs. Jaidka Motors
Co.Ltd. (1997) 1 Comp.LJ 268 (CLB), wherein, after discussing various
decided cases, practically all the objections as in this case were examined by
the board and it concluded that to treat a company as a partnership, it was not
necessary to have equal shareholding, no need for deadlock, no need for pre-
existing partnership, etc. It also observed that an analysis of various decisions
showed that the Courts have been looking for some basic understanding
written or unwritten between parties. Therefore, if the facts revealed some
basic understanding between the parties that the Company would be
managed on partnership principles, the same can be applied in a Section
397/ 398 Petition. The Company Law Board made a reference to a decision in
the case of Dipak G. Mehta v. Anupar Chemicals (India) Pvt.Ltd. (1999) 98
Comp Cas 575 to the effect that the facts have to be examined as to whether
they reflect the existence of any understanding of joint management justifying
the claim of legitimate expectation of being on the board by the Petitioners.
In paragraph 17 of the judgement, after reference to Smt.Nupur Mitra vs.
Basubani (P) Ltd. (2001) 41 CLA 306 (CLB), the Company Law Board
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concluded “in the same way, in the present case, we have only to see in the
absence of any written agreement and provisions in the articles and in the
absence of any original promoters, whether circumstances exist to draw a
presumption of an unwritten agreement relating to joint management giving
rise to legitimate expectation as that of a partnership as claimed by the
Petitioners”. In conclusion, at paragraph 20, the Company Law Board
observed as under:
“Thus, on an overall assessment of the facts of the case, we are
convinced that the company is in the nature of partnership with
the understanding of joint management by all the three families
of the promoters. Presently, the company is managed only by one
family, that is, the Ahujas’ in exclusion of the other two families
and therefore, the Petitioners have legitimate grievance of being
oppressed by the majority shareholders, viz., the Ahujas.
Therefore, their claim of being taken on the board is justified?”
47. Further, the principles of quasi-partnership have been invoked
even by Civil Courts in Civil Suits for the purpose of granting reliefs/interim
reliefs. In Sreejaya Bhattacharjee Godfrey v. Shreejaya Tea & Industries
(2013) SCC OnLine Cal 23018, the Calcutta High Court had before it a Suit
alleging that a director in a family company was acting on his own, which was
contrary to the Articles. His actions included appointing additional Directors.
The Court emphasized that the company was a family company and held as
under:
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appl30581-23.doc“34. I am not unmindful of the fact that both these companies are
family companies where members of a particular family hold the
entire shares or an overwhelming number of shares. Each sibling
has more or less an equal stake, one a little less, one a little
more. Two siblings are in a position to control the company, with
the possibility of the third being left out. It needs no reiteration
that such a closely held family company is considered like a
family partnership. Like each and every member of the family is
usually a partner in a family partnership, members of a family
are allowed to participate in the affairs of the family company.
Every effort should be made that every major interest in the
family is represented on the Board.”
35. I would like to read two paragraphs from Ramaiya’s
Companies Act, 15th Edition at Pg. 3107 and 3109.
“Where a shareholder-cum-director of a small private company
who was also under service agreement as a production director
was summarily dismissed by the company and thereafter
excluded from participation in management, he was allowed to
claim relief under section 459 of the [English] 1985 Act and was
held to be entitled to an order that his shares should be
purchased. His legitimate expectation of participation in
management as a director beyond the scope of his service
agreement involved mutual confidence, the articles restricted the
right of transfer of members’ interest in the company, these
factors showed the elements of a quasi-partnership, though he
knew that he would be a junior partner with a dominant senior
partner, his rights were not restricted to his strict rights under
the constitution of the company and his conduct did not justify
his dismissal and exclusion from management, his shares were
ordered to be purchased on a pro rata basis, without any
discount for the fact that he was a minority shareholder. Quinlan
v. Essex Hinge Co. Ltd., (1996) 2 BCLC 47 (ChD).”
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……………………………………………………………………..
“In a case in which the shares of a founding member, who had
earlier gifted his shares to his sons controlling the company,
were purchased by the company at a higher value then their
market price, a minority shareholders action questioning the
validity of the transaction was allowed. The Court stated: “…
because of the fundamental resemblance of the close corporation
to the partnership, the trust and confidence which are essential
to this scale and manner of enterprise, and the inherent danger
to minority interests in the close corporation, we hold that
stockholders in the close corporation owe one another
substantially the same fiduciary duty in the operation of the
enterprise that partners owe to one another. In our previous
decisions, we have defined the standard of duty owed by partners
to one another as the ‘utmost good faith and loyalty’…
Stockholders in close corporations must discharge their
management and stockholder responsibilities in conformity with
this strict good faith standard. They may not act out of avarice,
expediency or self interest in derogation of their duty of loyalty to
the other stockholders and the corporation.” Donahue v. Rodd
Electrotype Co. of New England Inc., (1975) 328 NE 2d 505 at
511 (Supreme Judicial Court).
36. In this company also the need is for this. Therefore, the
interim order that I pass today is that at least for the time being
the plaintiffs and the second defendant will constitute the Board
of Directors.”
(emphasis supplied)
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As an incident of a company being a family company and equated with
a family partnership, the Court made the observation that usually every
member of the family usually being a partner in a family partnership and
therefore allowed to participate in the affairs of the family company. The
Court further observed that every effort should be made that every major
interest in the family is represented on the board and passed an interim
order as mentioned above.
48. In Sita Chaudhary v. Verinder Singh (2022) SCC OnLine Del
2235, the Delhi High Court applied the principles of quasi partnership as
enunciated in Sangramsinh Gaekwad (supra) to determine the true nature of
the company and grant relief. Consequently, various injunctions were passed
against the Defendants to ensure the protection and preservation of the suit
properties. Paragraphs 62 to 65 and paragraphs 87 to 89 of the said
judgement are relevant and set out here under:
“62. On the other hand, the counsel for the plaintiff has relied
upon the judgment in Sangramsinh P. Gaekwad v. Shantidevi P.
Gaekwad (Dead) Through LRS., (2005) 11 SCC 314 in support
of his contention that the various defendant companies,
including the defendant no. 13 company, were basically family-
owned companies and in the nature of quasi-partnerships.
Therefore, the Court has the power to lift the corporate veil to
determine the real character of the said companies. The relevant
observations in Sangramsinh P. Gaekwad (supra) are
reproduced below:
Quasi-partnership-family company – corporate veil
225. A company incorporated under the Companies Act is
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corporate veil can be lifted. (See Kapila Hingorani . State of
Bihar ((2003 v ) 6 SCC 1: 2004 SCC (L&S) 586]).
226. The Court, however, has made a clear distinction
between a family company, a private company and a public
limited company. The true character of the company the
business realities of the situation should not confined to a
narrow legalistic view. (See Needle Industries [(1981) 3 SCC
333].)
227. It is now well known that principles of quasi-partnership
are not foreign to the concept of the Companies Act. For the
purpose of grant of relief the principles of partnership have
been applied even in a public limited company. (See Loch v.
John Blackwood Ltd. [[1924] A.C. 783: 1924 All ER 200]
and Ebrahimi v. Westbourne Galleries Ltd. [(1972) 2 All ER
492: [1973] A.C. 360: [1972] 2 WLR 1289 (HL)])
xxx xxx xxx
230. Kilpest (P) Ltd. v. Shekhar Mehra [(1996) 10 SCC 696]
whereupon Mr Desai placed strong reliance, thus, cannot be
said to be an authority for the proposition that for no purpose
whatsoever can the principles of quasi partnership be applied
to an incorporated company. The real character of the
company, as noticed hereinbefore, for the purpose of Judging
the dealings between the parties and the transactions which
are impugned may assume significance and in such an event,
the principles of quasi-partnership in a given case may be
invoked.
231. The ratio of the said decision, with respect, cannot be
held to be correct as a bare proposition of law, as was urged
by Mr. Desai. being contrary to larger Bench judgments of
this Court and in particular Needle Industries (1981) 3 SCC
3331. It is, however, one thing to say that for the purpose of
dealing with an application under Section 397 of the
Companies Act, the Court would not easily accept the plea of
quasi-partnership but as has been held in Needle Industries
[(1981) 3 SCC 3331 the true character of the company and
other relevant factors shall be considered for the purpose of
grant of relief having regard to the concept of quasi-
partnership.”
63. Initially, almost the entire shareholding in these
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companies/LLPs was held directly or indirectly by late Sh.
Devinder Chaudhry and the plaintiff (see Table 1 above). After
the transfer/gift of the shares in favour of the defendant no. 4
and 9, almost the entire shareholding in the said companies now
vest with the defendants.no. 4 and 9 (see Table III above). It is
pertinent to note that the defendants no. 4 and 9 have not
disputed the shareholding position as given in the aforesaid
table.
64. Table III above shows that the defendants no. 4 and 9 are the
only significant shareholders in the aforesaid entities and are
also the directors/partners. There is negligible amount of
outside shareholding. At all points of time, the companies were
closely held and did not have any substantial shareholding
outside the family. Except for the defendant no. 13 company,
none of the companies/LLPs had any running business.
Therefore, I find merit in the submission of the plaintiff that the
various defendant companies/LLPs, other than the defendant no.
13 company, have always been asset holding companies/LLPs.
Even in respect of the defendant no. 13 company, almost 83% is
held by the defendant no. 4, as is evident from the Form No.
BEN-1 dated 10th September, 2019 filed on behalf of the
defendant no. 4 and the outside Shareholding is only 6.8%. The
defendant companies/LLPs are mere alter egos of the
Defendants 4 and 9 in the nature of quasi-partnerships. The
defendants no. 4 and 9 have been treating these companies/LLPs
as their personal fiefdoms, as is evident from the various
instances of properties/assets being disposed of. Loans have
been doled out and monies siphoned off in an arbitrary manner
and without any commercial logic, solely on account of the fact
that the defendants no. 4 and 9 control these Companies/LLPs.
65. Therefore, in my prima face view, the principles laid down in
Sangram Singh Gaikwad (supra) can be applied to the facts of
the present case and the Court can look into true character of
the company for the purposes of grant of relief.
Conclusion
87. In view of the discussion above, my prima facie findings may
be summarized as under:
(i) Under the Will dated 26th March, 2004, the plaintiff had only
a limited beneficial interest in the estate of late Sh. Devinder
Chaudhary, which did not culminate into an absolute interest
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(ii) There is a doubt whether the Will dated 26th March, 2004 is
the last and final will of the late Sh. Devinder Singh Chaudhary,
as the defendant no. 2 has propounded a Will dated 2008, in
respect of which probate proceedings are pending.
(iii) Therefore, the plaintiff could not have transferred the
shareholding and interest in the estate of late Sh. Devinder
Singh Chaudhary in favour of the defendants no. 4 and 9.
(iv) The transfers of shares/interest in the defendant
companies/LLPs made in favour of the defendants no. 4 and 9
by the plaintiff were on account of undue influence exercised by
the defendants no. 4 and 9 over the plaintiff. Therefore, there a
doubt is created in respect of the title of the defendants no. 4 and
9 over the shares/interest in the defendant companies/LLPs,
transferred by the plaintiff.
(v) The various defendant companies/LLPs are nothing but alter
egos of the defendants no. 4 and 9 and in the nature of quasi-
partnerships. Therefore, following the ratio of Sangramsinh P.
Gaekwad (supra), this Court is entitled to restrain the aforesaid
companies/LLPs from disposing of their immovable properties.
(vi) Various loans have been taken and unauthorized transfers
made from the defendant companies/LLPs and other family-
owned companies/LLPs in favour of the defendants no. 4 and 9.
These have been used to acquire properties/assets in their own
names.
(vii) Various properties of late Sh. Devinder Singh
Chaudhary/plaintiff and the defendant companies/LLPs have
been disposed of or attempted to be disposed of by the
defendants no. 4 and 9 after acquiring control of these
companies/LLPs.
88. In view of the above, the plaintiff has made out a prima facie
case in her favour for grant of interim injunction. Balance of
convenience requires that the properties in the names of the
defendant companies/LLPs are preserved and the defendants no.
4 and 9 are restrained from disposing of the said properties held
by the defendant companies/LLPs on the basis of the
shareholding/interest acquired by the defendants the no.4 and 9
in the aforesaid companies/LLPs till the final adjudication of the
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suit. Further the defendants no. 4 and 9 should also be
restrained from selling or disposing Immovable properties
acquired by them till the final adjudication of the suit.
Irreparable harm and injury would be caused to the plaintiff as
well as other legal heirs of the plaintiff and late Sh. Devinder
Singh Chaudhary if the assets/properties belonging to the
defendant companies/LLPs are frittered away by the defendants
no. 4 and 9 during the pendency of the present suit. Ultimately if
the Court decrees the suit in favour of the plaintiff and the
assets/properties of the defendant companies/LLPs have been
alienated or sold, the decree would be rendered otiose.
89. Consequently, an interim injunction is passed in favour of
the plaintiff and against the defendants in the following terms:
(i) No third party interest, including sale, transfer and
encumbrance, shall be created in respect of the properties
owned by the defendants no. 13 to 17;
(ii) The defendant no. 4 and 9 are restrained from transferring,
selling, alienating and creating third party interest in the
properties, being property/office in Building No. 7, Basantlok,
Vasant Vihar, New Delhi; flat at Magnolia, Gurgaon;
accommodation on the first and second floor of Tower B,
Magnum Towers, Golf Course Extension Road, Sector 58,
Gurgaon; factory land and building at Village Khanpur purkazi
Laksar Road, Dist. Uttarakhand-247663.
(iii) The aforesaid directions shall not come in the way of the
defendant no. 13 selling/transferring plots developed in
Madhuban Colony situated in Rajpura, Punjab.”
49. In NAS v. Delhi Guest House Services Private Limited (2022)
SCC OnLine Del 3106, the suit was one for a permanent injunction against
dispossession. It was urged that the suit property was a family property
merely held by the Defendant for the family. The Defendants were not then
permitted to introduce the garb of a corporate structure to defeat what were
essentially family owned properties. The Court then injuncted the Defendants
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from dispossessing the Plaintiff. Paragraphs 38 to 43 and 53 of the judgement
are relevant and set out here under :
“38. It is an admitted position that the defendant no. 1 has only
two shareholders the defendant no. 2 company, which holds
71.52% of the shares and the defendant no. 3 Trust, which holds
28.48% of the shares. The defendant no. 2 company, in turn, is
wholly owned by the defendant no. 3 Trust. Therefore, the
defendant no. 3 Trust holds the entire shareholding of the
defendant no. 1 company, directly or indirectly. It is not denied
that the defendant no.1 company does not conduct any business.
In fact, the suit property is the sole asset of the defendant no.1
company. The defendant no. 5 is the Chairman of the defendant
no. 1 company and controls the decision-making of the
defendant no. 1 company. Further, the defendant no. 5 is also the
Managing Trustee of the defendant no. 3 Trust and yet, under
the influence of defendant no. 5, the defendant no. 1 company
has taken a stand which is completely contrary to the interest of
the defendant no. 3 Trust. Therefore, the defendant no. 5 cannot
be permitted to defeat the provisions of the Trust-II Deed by
taking a plea that defendant no. 1 company is an independent
corporate entity that owns the suit property.
39. At this juncture, reference may be made to the judgment of
the Supreme Court in Sangramsinh P. Gaekwad (supra).
Relevant observations of the judgment are reproduced below:
“225. A company incorporated under the Companies Act is a
body corporate. However, in certain situations, its corporate
veil can be lifted. (See Kapila Hingorani v. State of Bihar
[(2003) 6 SCC 1: 2004 SCC (L&S) 586].)
226. The Court, however, has made a clear distinction
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appl30581-23.docbetween a family company, a private company and a public
limited company. The true character of the company, the
business realities of the situation should not be confined to a
narrow legalistic view. (See Needle Industries [(1981) 3 SCC
333].)
227. It is now well known that principles of quasi-partnership
are not foreign to the concept of the Companies Act. For the
purpose of grant of relief the principles of partnership have
been applied even in a public limited company. (See Loch v.
John Blackwood Ltd. [[1924] Α.C. 783 : 1924 All ER 200]
and Ebrahimi v Westbourne Galleries Ltd [(1972) 2 All ER
492: [1973] A.C. 360: [1972] 2 WLR 1289 (HL)])…
230. Kilpest (P) Ltd. v. Shekhar Mehra [(1996) 10 SCC 696]
whereupon Mr Desai placed strong reliance, thus, cannot be
said to be an authority for the proposition that for no purpose
whatsoever can the principles of quasi-partnership be
applied to an incorporated company. The real character of
the company, as noticed hereinbefore, for the purpose of
judging the dealings between the parties and the transactions
which are impugned may assume significance and in such an
event, the principles of quasi-partnership in a given case may
be invoked.
231. The ratio of the said decision, with respect, cannot be
held to be correct as a bare proposition of law, as was urged
by Mr Desai, being contrary to larger Bench judgments of
this Court and in particular Needle Industries [(1981) 3 SCC
333]. It is, however, one thing to say that for the purpose of
dealing with an application under Section 397 of the
Companies Act, the Court would not easily accept the plea of
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[(1981) 3 SCC 333] the true character of the company and
other relevant factors shall be considered for the purpose of
grant of relief having regard to the concept of quasi-
partnership.
40. The principles laid down in Sangramsinh P. Gaekwad
(supra) have been followed by me in Sita Chaudhry v.
Verinder Singh, 2022 SCC OnLine Del 2235, to hold that the
companies involved in the said case, being mere alter egos of
the majority shareholders, who were also the family members
of the plaintiff therein, were in the nature of quasi-
partnerships. The aforesaid principles of family
company/quasi partnership can be applied to the facts of the
present case and the Court can look into to the true character
of the defendant no. 1 company for the purposes of grant of
interim relief.
41. On behalf of the defendants, it has been contended that
the suit property is the registered office of various
companies/Trusts belonging to the family of the defendant no.
5. The fact that the suit property is the registered office of
various companies/Trusts without any formal arrangement
between the said companies/Trusts with the defendant no. 1
supports the contention of the plaintiff that the suit property
has always been treated as a family company and the
defendant no. 1 Company only owned the suit property on
behalf of the family.
42. Senior counsels for the defendants also stated that the
plaint does not contain pleadings in respect of the defendant
no. 1 being a family company or for lifting of the corporate
veil. I do not agree. In my view, there are sufficient pleadings
in the plaint as well as in the replication with regard to
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defendant no. 1 company being a family company and lifting
of the corporate veil.
43. In view of the discussion above, I am of the prima face
view that defendant no. 1 company is and has always been a
family company for the purposes of holding of the family-
owned properties and at present, is nothing but an alter ego
of the defendant no. 5. The defendant no. 5, in his capacity as
Chairman of the defendant no. 1 company, cannot take a
stand contrary to the provisions of the Trust-II Deed, of
which he is the Managing Trustee, under the garb of the
defendant no. 1 company being a separate corporate entity.
The filing of CS(OS) 195/2022 by the plaintiff for execution
of a perpetual lease between the Trust and the defendant no.
1 company would not dilute the stand of the plaintiff in the
present suit. The defendant no. 5 cannot use the cloak of the
defendant no. 1 company to defeat the rights of the plaintiff
and dispossess the plaintiff from the portion of the suit
property occupied by her for the last forty years.
53. In view of the above, an interim injunction is issued in the
following terms:
(i) Status quo with regard to title and possession shall be
maintained by the parties in respect of the suit property. It is
clarified that all common areas of the suit property, as
identified in the proposal for interim living arrangement filed
on behalf of the plaintiff on 3rd August, 2022, shall continue
to be accessible to all members of the family.
(ii) Status quo shall be maintained by the defendants in
relation to the expenses incurred in respect of the suit
property, including staff, maintenance and upkeep expenses.
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(iii) Status quo shall be maintained by the defendants in
relation to the payments of the statutory dues, including
property tax, electricity bills, water bills, telephone bills and
internet charges in respect of the suit property.”
50. In our view, considering the aforesaid position in law, the
Learned Single Judge was right in granting a mandatory injunction to
reinstate Plaintiff No.1 as a director at the ad-interim stage on the basis of a
family arrangement and on the basis that Defendant No.4 is a quasi
partnership, and therefore Plaintiff No. 1 has a right to participate in the
management of Defendant No.4.
Submissions of the Defendants
51. The Defendants submitted that the Plaintiffs’ reliance on the
purported Family Arrangement and / or MOU is utterly misplaced and
misconceived. In this context, it was submitted that the context in which the
MOU was executed is relevant. A plain reading of the MOU evinces that the
MOU was entered into in order to facilitate and record the exit of Harshad
Shah and Ketan Shah, brothers of Plaintiff No.1, from Defendant No.4 and
other group entities.
52. Further, the Defendants submitted that in any event, on a plain
reading of the MOU, it was clear that there was no such provision regarding
directorship of Plaintiff No.1 or any other director / family member.
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53. The Defendants submitted that a bare perusal of Clause 5 of the
MOU makes it evident that, upon the exit of Harshad Shah and Mr.Ketan
Shah, the management and control in each of the entities, being parties of the
Sixth to Eleventh part, was to continue with the parties of the Fifth Part.
Clause 5 in no manner refers or implies that the nature of such management
is permanent or there exists a vested right in the management. The said
clause does not in any manner entrench directorship of Plaintiff No.1, or any
other director in the 4th Defendant Company. In order to make out a case for
entrenchment, there must be an express clause for permanent directorship,
which the MOU does not contain. In fact, the word “director” is not
contemplated at all.
54. The Defendants further submitted that the Plaintiffs had argued
that “each of them” appearing in Clause 5 of the MOU refers to each of the
parties of the Fifth Part and, therefore, as one of the parties in the Fifth Part,
Plaintiff No.1 is entitled to permanent directorship. However, a bare perusal
of the aforesaid clause would make it clear that “each of them” refers to each
of the entities being parties of the Sixth to Eleventh part i.e. the companies
and not each of the parties of the Fifth Part.
55. The Defendants submitted that it is evident that when “each of
them” is read as “Parties of the Sixth to Eleventh Part,” the clause reads to
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mean that the Parties of the First Part are transferring their shareholding to
the Party of the Fifth Part so as to ensure that full management and control of
each of the entities, i.e. ” Parties of the Sixth to Eleventh Part” continues with
the “Party of the Fifth Part”.
56. The Defendants further submitted that it was alleged by the
Plaintiff that even if this Court was to hold that “each of them” referred to in
Clause 5 refers to the companies i.e. ” Parties of the Sixth to Eleventh Part,”
and not the “Parties of the Fifth Part”, the definition of the Fifth Part includes
each of those named therein, thus vesting a right to permanent directorship in
Plaintiff No.1. The Defendants submitted that this is erroneous as the words
“mean and include each of them” appearing in the description of the parties to
the MOU is with reference to “the said L.A. Group” which finds no place in
Clause 5 of the MOU.
57. The Defendants submitted that in view of the above, the
directorship of Plaintiff No.1 is neither entrenched nor permanently vested in
Plaintiff No.1 under Clause 5 or under any other provision of the MOU.
58. Further, the Defendants submitted that, even assuming that the
MOU does provide for permanent directorship, then the MOU would be
inconsistent with the provisions of Section 169 of the Companies Act, 2013
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which provides that a company may remove its director by an ordinary
resolution.
59. As far as the above mentioned submissions of the Defendants are
concerned, it is not the case of the Plaintiffs that the family arrangement is
recorded only in the MOU dated 3 rd September 2010. According to the
Plaintiffs, the family arrangement is recorded in paragraph 39 of the plaint.
Paragraph 39 of the plaint states that the longstanding foundation basis/oral
in existence as narrated above and broadly summarised; the MOU with its
express and implied rights and obligations which respected the pre-existing
status of the family members are hereinafter collectively referred to as a
Family Arrangement. According to the Plaintiffs, it is this family arrangement,
and the admitted fact that Defendant No.4 is a quasi-partnership, that gives
Plaintiff No.1 the right to participate in the management of the Defendant
No.4.
60. Further, clause 5 of the MOU, which is set out hereinabove, gives
full management and control of the companies of the Sixth to Eleventh Part
and of each of these companies to the party of the Fifth Part. The Party of the
Fifth Part includes Plaintiff No.1. This shows that the Plaintiff No.1 was
ensured management and control of Defendant No.4.
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61. Further, as set out above in detail, apart from Clause 5 of the
MOU, various other recitals and clauses of the MOU show the existence of a
family arrangement which is being enforced by the present Suit.
62. In these circumstances, we are unable to accept the
abovementioned submission of the Defendants.
63. The next submission of the Defendants is that the concept of
quasi-partnership has no bearing on the Plaintiffs’ removal. In this context
the Defendants submitted that the the doctrine of just and equitable is
applicable to companies in the context of winding up. This means that a
company may be wound up if there are just and equitable grounds to do so. A
classic example of such a ground is deadlock in the board of directors.
Another example is if in quasi-partnership and family companies,
understandings between the shareholders are breached to destroy the
character of those quasi partnership/family companies. The Defendants
submitted that to characterize a company as a quasi-partnership is merely to
say that the principles of partnership will apply so far as applicable to the
inter se relations between the shareholders. The decisions in the case of
Ebrahimi (supra) and O’Neill and Another (supra) are authorities for this
proposition.
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64. The Defendants further submitted that, by contrast to the
equitable nature of the just and equitable jurisdiction, it is well settled that
the right to remove a director conferred upon the general body is an absolute
right and is not in any way controlled by just and equitable considerations.
The Defendants submitted that in the judgement in Life Insurance
Corporation v/s. Escorts Limited (1986) 1 SCC 264, the Hon’ble Supreme
Court has expressly affirmed the position laid down in Ebrahimi (supra) that
the only recourse available to a director who is removed contrary to any
special underlying obligations which his fellow members owe to him in good
faith or confidence is to seek winding up/dissolution of the company on the
ground that it is a quasi-partnership. There is no remedy for reinstatement.
In this context, the Defendants referred to paragraphs 98 and 99 of the
judgement of the Supreme Court in Escorts Limited (supra), which read as
under:
“98. In Inderwick v. Snell [42 ER 83] the deed of settlement of a
company provided for the removal of any Director “for
negligence, misconduct in office or any other reasonable cause”.
Some directors were removed and others were appointed. The
Directors who were removed sued for an injunction to prevent
the new directors from acting on the ground that there was no
reasonable cause for their removal. The Court negatived the
claim for judicial review of the reasons for removal and made
the following interesting observations:
“The argument for the plaintiffs rested on the allegation that the
general cause of removal referred to in the clause being
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appl30581-23.docexpressed to be reasonable’ prevents the power referred to from
being a power to remove at pleasure arbitrarily or capriciously,
and made it requisite that the proceeding for exercising the
power should be in its nature judicial, and that the reasonable
cause should be such as a Court of Justice, would consider good
and sufficient. If this argument could be sustained, all the
proceedings at such meetings would be subject to the review of
the Courts of Justice, which would have to inquire whether the
cause of removal which was charged was in their view
reasonable, whether the charges were bona fide brought
forward, whether they were substantiated by such evidence as
the nature of the case required, and whether the conclusion was
to come upon a due consideration of the charge and evidence.
But the deed is silent as to these matters and the question is
whether any such power of control in the Courts of Justice is to
be interred from the words reasonable cause’ contained in the
27th clause; whether the expression ‘reasonable cause’
contained in such a deed of a trading partnership can be held to
be such a cause, as upon investigation in a Court of Justice must
be held to be bona fide founded on sufficient evidence and just;
or whether it ought not to be held to mean such cause as in the
opinion of the shareholders duly assembled shall be deemed
reasonable. We think the latter is the true construction and
effect of the deed.
In a moral point of view, no doubt every charge of a cause of
removal ought to be made bona fide, substantiated by sufficient
evidence, and determined on a due consideration of the charge
and evidence; and those who act on other principles may be
guilty of a moral offence: they may be very unjust, and those
who (being misled by the statements made to them), have no
doubt a just right to complain that they have been led to concur
in an unjust act. But the question is, whether by this deed the
shareholders duly assembled at a general meeting might not, or
had not a right to, remove a director for a cause which they
thought reasonable, without it being incumbent upon them to
prove to this or any other Court of Justice that the charge was
true and the decision just, or that the case was substantiated
after a due consideration of the evidence and charge. We cannot
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appl30581-23.doctake upon ourselves to say that in the case of a trading
partnership like this, this Court has upon such a clause in the
deed of partnership jurisdiction or authority to determine
whether, by the unfounded speech of any supporter of the
change, the shareholders present may not have been misled or
unduly influenced.
All such meetings are liable to be misled by false or erroneous
statements, and the amount of error or injustice thereby
occasioned can rarely, if ever, be appreciated. This Court might
inquire whether the meeting was regularly held, and in cases of
fraud clearly proved, might perhaps interfere with the acts done;
but supposing the meeting to be regularly convened and held,
the shareholders assembled at such meeting may exercise the
powers given them by the deed. The effect of speeches and
representations cannot be estimated, and for those who think
themselves aggrieved by such representations, or think the
conclusion unreasonable, it would seem that the only remedy is
present defence by stating the truth and demanding time for
investigation and proof, or the calling of another meeting, at
which the whole matter may be reconsidered. The plaintiffs,
objecting to this meeting and considering it illegal, protested
against it, but abstained from attending, and, therefore, made no
answer or defence to, and required no proof of, the charges
made against them. The adoption of this course was unfortunate,
but does not afford any grounds for the interference of this
Court. ”
99. Again in Bentley Stevens v. Jones [(1974) 2 All ER 653] it
was held that a shareholder had a statutory right to move a
resolution to remove a Director and that the Court was not
entitled to grant an injunction restraining him from calling a
meeting to consider such a resolution. A proper remedy of the
Director was to apply for a winding-up order on the ground that
it was “just and equitable” for the Court to make such an order.
The case of Ebrahimi v. Westbourne Galleries Ltd. /(1972) 2 All
ER 492/, was explained as a case where a winding-up of order
was sought. In the case of Ebrahimi v. Westbourne Galleries
Ltd. /Re Wondoflex Textiles Pty. Ltd., 1951 VLR 458/, the
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absolute right of the general meeting to remove the Directors
was recognised and it was pointed out that it would be open to
the Director sought to be removed to ask the Company Court for
an order for winding-up on the ground that it would be “just and
equitable” to do so. The House of Lords said:
“My Lords, this is an expulsion case, and I must briefly justify
the application in such case of the just and equitable clause….
The law of companies recognises the right, many ways, to
remove a director from the Board. Section 184 of the Companies
Act, 1948 confers this right on the company in the general
meeting whatever the articles may say. Some articles may
prescribe other methods, for example a governing director may
have the power to remove. [Re Wondoflex Textiles Pty. Ltd.,
1951 VLR 458] And quite apart from removal powers, there are
normally provisions for retirement of directors by rotation so
that their re-election can be opposed and defeated by a majority,
or even by a casting vote. In all these ways a particular
director-member may find himself no longer a director, through
removal or non-re-election; this situation he must normally
accept, unless he undertakes the burden of proving fraud or
mala fides. The just and equitable provision nevertheless comes
to his assistance if he can point to, and prove, some special
underlying obligation of his fellow member (s) in good faith, or
confidence, that so long as the business continues he shall be
entitled to management participation, an obligation so basic
that if broken, the conclusion must be that the association must
be dissolved.”
65. The Defendants submitted that it is evident from the said
judgement that the right to remove a director is an absolute right of a general
body of shareholders, and the recourse a director would have in the case of a
family company or quasi partnership would be applying for winding up on the
ground that it is “just” and “equitable”.
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66. We are unable to accept that the Hon’ble Supreme Court in
Escorts Limited (supra) has laid down such a broad proposition that a
director, who has been removed from his position as a director, in breach of a
family arrangement and a right to participate in the management of the
company which is a quasi partnership, can only ask for winding up of a
company on the just and equitable ground, and take no other action in law in
that regard.
67. In the present case, Plaintiff No.1 was sought to be removed as a
director on the ground that he was carrying on a business which competed
with the business of Defendant No. 4. On the same ground, the IP suit was
filed wherein an ex-parte order dated 5 th April 20223 was obtained granting
an injunction against Plaintiff No.1. On an application made by Plaintiff No.1,
by an Order dated 5th July 2023, the said ex-parte order was set aside on the
ground that, if all the material facts and documents were placed before this
Court, then it would not have granted the ex-parte order. In this scenario, the
Learned Single Judge was right in granting an ad-interim order reinstating
the Plaintiff No.1 interalia on the ground of a family arrangement and quasi
partnership and the right of Plaintiff No.1 to participate in the management of
Defendant No.4. In our view, the judgement of the Hon’ble Supreme Court in
Escorts Limited (supra) does not bar such an ad-interim order being passed.
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68. The Defendants submitted that the case of Ebrahimi (supra) also
considered the expulsion of a director, as in the present case. It was this
expelled director who had then applied for winding up under the just and
equitable clause, and it was in this context that the observations were made.
In fact in Ebrahimi (supra) itself, the House of Lords made it clear that even
though the just and equitable provision may come to the assistance of the
expelled director where some special underlying obligation can be proved,
and even though the expelled director may be able to show that he shall be
entitled to management participation for as long as the business continues,
and that the obligation is so basic that, if broken, the association itself must
be dissolved, the director must normally accept if he finds that he is no longer
a director through removal or non-election.
69. For the reasons given by us hereinabove, with respect to the case
of Escorts Limited (supra), we are unable to accept this submission of the
Defendants.
70. With regard to the decision of House of Lords in O’Neill (supra),
the Defendants submitted that the same is entirely in a different context and
the observations have to be understood in their own factual context. The
petition in the O’Neill (supra) case was on the basis that the company’s affairs
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were being conducted in a manner unfairly prejudicial to that of a minority
shareholder. Thus, the Petition was filed under Section 459 of the Companies
Act, 1985. In India as well, the petition would fall squarely within the scope of
oppression and mismanagement under Sections 241 and 242 of the
Companies Act, 2013. As such, the jurisdiction of the Court in the case of
O’Neill (supra) was itself altogether different and was the equitable
jurisdiction of Section 459 of the UK Companies Act, 1985, which provided for
protection of minority interests. Accordingly, the observations in so far as the
valid exercise of powers giving way to equity are not applicable to a civil Court
considering the removal of a director in a suit, particularly since Courts only
interfere in a removal of director if there is a procedural defect in such
removal. As such, the case of O’Neill (supra), is entirely distinguishable both
on facts and being in an entirely different jurisdiction. The Defendants
submitted that, in view of the above, it is evident that any argument or claim
on the basis of minority representation and protection of right to
management would be a consideration only where a Court was considering
whether there has been oppression and mismanagement as the very test for
oppression is unfair prejudice to a minority shareholder.
71. The judgement in O’Neill (supra) clearly lays down that in a
quasi-partnership there may be provisions made, by words or conduct, which
it would be unfair to allow a member to ignore. It also lays down that such a
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promise may be binding as a matter of justice and equity. We are unable to
accept the submission of the Defendants that this proposition is applicable
only in cases of oppression and mismanagement and is not applicable to a
Civil Court considering the removal of a director in a Suit. In our view,
neither the judgment in O’Neill (supra), nor any other judgment cited before
us takes such a narrow view. In fact, in the judgements referred to by us
earlier, this proposition is applied even in a Civil Suit.
72. With regard to the decision of the Hon’ble Supreme Court in
Sangramsinh P. Gaekwad (supra), the Defendants submitted that this
decision is once again in the oppression and mismanagement jurisdiction
(Sections 397 and 398 of the Companies Act, 1956). Further, the observations
that the principles of quasi-partnership can be invoked in an application
under Section 397 of the Companies Act, 1956, which have been relied upon
by the Plaintiffs, are not in dispute whatsoever. The Defendants submitted
that, however, the present case is not in the jurisdiction of Section 397 and
398/Sections 241 and 242 (oppression and mismanagement) but is the civil
jurisdiction of a suit.
73. We are unable to accept this submission of the Defendants.
Whilst it is true that the observations in Sangramsinh P. Gaekwad (supra)
were made in a matter arising from a petition under oppression and
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mismanagement, the observation that it is important to take into account the
real character of the Company as being a quasi-partnership to judge the
dealings between its members, is an observation which is clearly universal
and by no means is restricted only to the invocation of quasi-partnership in
the context of an oppression and mismanagement petition. It could apply
clearly in any case, especially one where there is admittedly a quasi-
partnership in existence as between the parties.
74. With regard to the decision in Murlidhar Ratanlal Exports Ltd.
(supra), the Defendants submitted that this case was once again in relation to
an application under Sections 397 and 398 of the Companies Act, 1956
(oppression and mismanagement) and was accordingly under another
jurisdiction altogether. Further, the Defendants submitted that the facts
involved a rights issue when there was already a company petition for
oppression and mismanagement pending against the company, and the
observations relied upon by the Plaintiffs that the platform of a family
company resting on a pivot is to be kept in equilibrium, is in the facts of the
case where such rights issue was being initiated, pending hearing of the
petition, to disturb the equilibrium. The Defendants submitted that the facts
in Murlidhar Ratanlal Exports Ltd. (supra), are entirely different.
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75. In our view, the observations in Murlidhar Ratanlal Exports Ltd.
(supra), relied upon by the Plaintiffs to the effect that the platform of the
company resting on a pivot is to be kept in equilibrium and that the platform
is kept in equilibrium by recognition of rights, obligations, expectations of
every family member who constitutes a small family company and resembles
a partnership, are not, and cannot be, confined only to cases of oppression
and mismanagement.
76. The Defendants submitted that the decision of the Company Law
Board in Jagjit Singh (supra) was also a decision under Sections 397 and 398
of the Companies Act, 1956 (oppression and mismanagement). The
Defendants submitted that, in the said case, the principle of quasi-partnership
was invoked to submit that the exclusion of one family, out of the three
families that were running the company, would amount to oppression on the
part of the majority, and an order of winding up on the just and equitable
grounds should follow. The Defendants submitted that, therefore, it was
evident that the jurisdiction, in which the principles were invoked, was
altogether different. Further, the Defendants submitted that the decision in
fact supported the case of the Defendants that the argument of equal
representation of a family branch in a quasi-partnership falls within
oppression and mismanagement and cannot be maintained in a suit
challenging removal of a director or in a suit for specific performance (as is
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the frame of the present Suit, i.e. specific performance of the Memorandum of
Understanding dated 3rd September 2010). The Defendants also submitted
that the decision in Jagjit Singh (supra) makes it clear that normally
directorial complaints cannot be agitated in an action for oppression and
mismanagement unless in cases where the company is a family company or in
the nature of a partnership (quasi-partnership), in which case the principles
of quasi-partnership can be invoked.
77. In our view, the said decision does not support the case of the
Defendants that the argument of equal representation of a family branch in a
quasi-partnership company falls within oppression and mismanagement and
cannot be maintained in a suit challenging the removal of a director or in a
suit for specific performance. In this context, it is important to note that, in
the said judgement, the Company Law Board concludes in paragraph 20 as
under:
“Thus, on an overall assessment of the facts of of the case, we
are convinced that the company is in the nature of partnership
with the understanding of joint management by all the three
families of the promoters. Presently, the company is managed
only by one family, that is, the Ahujas’ in exclusion of the other
two families and therefore, the petitioners have legitimate
grievance of being oppressed by the majority shareholders, viz.,
the Ahujas. Therefore, their claim of being taken on the board is
justified”
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78. Further, paragraph 22 of the Company Law Board’s decision
shows that the option was given to the Respondents therein either to induct
one of the nominees of the Petitioners as a working director on the board or to
purchase the shares held by the Petitioners at the fair value to be determined
by an independent valuer so that they also share the benefit of the efforts of
the Chawlas when they were on the board. Thus, in the said decision, the
principles of quasi partnership were invoked and one of the options given to
the Respondents was to induct one of the nominees of the Petitioners as a
working director on the board.
79. The Defendants further submitted that the only cases relied upon
by the Plaintiffs in which the principles of quasi-partnerships have been
applied to suits are the decisions of the Delhi High Court in Sita Chaudhary
(supra), NAS (supra) and Arrena Overseas Private Limited vs. Batra Art
Press, (2022) SCC OnLine Del 3543. The Defendants submitted that all the
three decisions are of the same judge. The decision in NAS (supra) has relied
on the decision in Sita Chaudhary (supra), and the decision in Arrena
Overseas Private Limited (supra) has relied on the decision in NAS (supra).
The Defendants further submitted that, in any event, the facts in the said
cases were entirely different from that of the present case. The said cases were
not suits challenging removal of director, but on the true nature of a company
and its property. As such, the observations in the above cases do not support
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the Plaintiffs. Further, in the case of Sita Chaudhary (supra), which was
effectively followed by the rest, the principles of quasi-partnership were
invoked to lift the corporate veil, and the observations made were in that
context.
80. We are unable to agree with the submissions of the Defendants
that the said cases are not relevant. In Sita Chaudhary (supra), the Court
applied the principles of quasi-partnership as enunciated in Sangramsinh
Gaekwad (supra) to determine the true nature of the company and
consequently granted an injunction against the Defendants therein to ensure
the protection and preservation of the suit properties. In NAS (supra), the suit
was one for a permanent injunction against dispossession. It was urged inter
alia that the suit property was a family property merely held by the
Defendants therein for the family. The Defendants therein were not then
permitted to introduce the garb of a corporate structure to defeat what were
essentially family owned properties and the Court injuncted the Defendants
therein from dispossessing the Plaintiff. In Arrena Overseas Private Limited
(supra), the Delhi High Court was concerned with the Plaintiff company’s
application under Order XII Rule 6 r/w Order XIII A seeking possession. The
same was contested. Following the decision in NAS (supra), the Court held
that since the company is, in essence, a family company, the real owner of the
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property would therefore be the patriarch who had now passed away. As such
the property would devolve on the heirs. Therefore, the Application was
dismissed as there were issues to be determined at the trial.
81. With regard to the decision in Sreejaya Bhattacharjee Godfrey
(supra), the Defendants submitted that the facts of the said case were entirely
different and distinguishable. In that case, two of the three directors of the
company had passed away. On the other hand, by statute they were required
to have two directors in order to take decisions and function as a board of
directors as required under law. However, in order to appoint directors validly
and call for a general meeting, they also required a board of directors
consisting of two. In these circumstances, instead of approaching the
Company Law Board to call for the meeting, the sole director started acting on
his own. It was in this context that the observations relied on by the Plaintiffs
were made and it was in that context that the relief was granted.
82. Again, we are unable to agree with the submissions of the
Defendants regarding Sreejaya Bhattacharjee Godfrey (supra). As an incident
of a company being a family company and equated with a family partnership,
the Court made the observation that usually every member of the family
being in the family partnership is therefore allowed to participate in the
affairs of the family company. The Court further observed that every effort
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should be made that every major interest in the family is represented on the
board and passed an interim order that, for the time being, the Plaintiffs and
the Defendant No.2 therein will constitute the board of directors. Hence, this
is a case where the principles of quasi-partnership have been followed and a
director was appointed on the board of directors of the company by the
Company Law Board.
83. The Defendants further relied on V. B. Rangaraj vs. V. B.
Gopalkrishnan & Ors (1992) 1 SCC 160 and submitted that, unless the MOU
dated 3rd September 2010 was incorporated in the Articles of Association of
Defendant No.4, it remains unenforceable.
84. In V.B.Rangaraj (supra), the facts were that the company was
not a party to the oral family agreement. In the present case, the Defendant
No.4 is a party to the MOU dated 3rd September 2010. In these
circumstances, the decision in V.B.Rangaraj (supra) is clearly distinguishable
on the facts of the case .
85. On the issue of granting of a mandatory injunction, the
Defendants have relied upon the decisions of the Hon’ble Supreme Court in
Dorab Cawasji Warden v/s Coomi Sorab Warden (1990) 2 SCC 117, Samir
Narain Bhojwani v/s Aurora Properties and Investments and Another (2018)
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17 SCC 203, Deoraj v/s State of Maharashtra and Ors. (2004) 4 SCC 697, and
Hammad Ahmed v/s Abdul Majeed and Others (2019) 14 SCC 1 .
86. On the basis of the aforesaid judgements, the Defendants
submitted that the mandatory injunctions at any stage, let alone the ad-
interim stage, should only be granted in the following circumstances:
a. where the Plaintiff’s case for trial is stronger and
that of a higher standard than that of a prima facie
case as is normally required for a prohibitory
injunction;
b. where the failure to grant a mandatory injunction
would result in such injustice that the Court at the end
of the matter would not be able to vindicate it;
c. where the withholding of mandatory injunction
would be in the nature of a dismissal of the main
petition in itself because by the time the matter comes
up for hearing there would be nothing left to be
allowed in terms of reliefs;
d. where the considerations of balance of convenience
and irreparable injury would forcefully tilt the balance
of the case totally in favour of the applicant;
e. where it is absolutely necessary to prevent
irreparable or serious injury which cannot be
compensated in terms of money;
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of the Court and do violence to the sense of justice;
andg. Such cases required a mandatory injunction would
be rare cases accompanied by compelling
circumstances, where the injury complained of is
immediate and pressing and could cause extreme
hardship.
87. The Defendants submitted that it is evident that the grant of a
mandatory injunction requires compelling or exceptional circumstances and
that it is a remedy that is not easily granted. The Defendants further
submitted that in fact, the test, as further refined in the cases of Deoraj
(Supra) and Hammad Ahmed (Supra) is that the case for grant of mandatory
injunction must be such that withholding of such relief would render the
petition futile or dismissal of the petition, as there would be no reliefs left to
grant.
88. The Defendants submitted that as such, judicial discretion for
the grant of such relief has to be exercised within the cornerstones of the
above principles set out by the Supreme Court. More so, at the time of ad-
interim relief, the discretion to grant a mandatory injunction must be
exercised even more cautiously.
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89. The Defendants submitted that the Learned Single Judge has
erred in granting such relief for various reasons, some of which are as follows:
a. The Learned Single Judge has not delved into the factors
necessitating the grant of ad-interim relief at all in the course of
the Impugned Order dated 25th October 2023 despite substantial
arguments on the same being advanced by both sides.
b. The Learned Single Judge with regard to the facts necessary for the
grant of ad-interim factors held as follows:
“49. There are many instances quoted as to how Plaintiff
No. I was denied access when he intended to exercise his
right as a director. It was also argued by Mr.
Andhyarujina that his client has never denied any right
to Plaintiff No.1 as a shareholder. Once Plaintiff No.1 is
removed from the post of director, the acts of Defendant
No.1 to Defendant No.3 can only be described as acts
done while implementing the decision.
50. I am not going into further details. So also, Mr.
Andhyarujina invited my attention to various WhatsApp
messages wherein Plaintiff No.1 himself has come
forward to sell the premises wherein Export Division
was functioning. An attempt is also made by Mr. Dhond
to show me a cash-book showing withdrawal of an
amount in lakhs of rupees by other directors. I have not
dealt with these aspects as I am satisfied that a case of
interim mandatory injunction is made out for the reasons
stated hereinabove. All these instances only shows the
intentions of the parties. These instances have taken
place when there was a cordial relationship and had
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appl30581-23.dochappened when they have started the process of
separation and have happened once Plaintiff No.1 was
removed without following the procedure of law. It is
true that background for instituting the Infringement Suit
is the act of selling the products by Plaintiff No. 1 and
No.2 through Absolink Private Limited.”
As such, the Learned Single Judge has not made any
finding as regards why the grant of mandatory injunction at the
ad-interim stage was necessary in the facts of the present
case.
c. The Learned Single Judge has erred in not assigning
special reasons for the grant of mandatory injunction. In this
regard, reliance is placed on the judgement of the Hon’ble
Supreme Court in the case of Srikrishna & Ors vs. Aniruddha
Singh & Ors. (2005) 12 SCC 389 which set aside an order
granting mandatory injunction on the ground that no special
reasons were cited.
d. The facts which were presented in the Plaint to demonstrate
necessity of urgent and ad-interim reliefs and the fact that the
Defendants had allegedly “taken various unilateral, malicious
and far-reaching steps to disturb the status quo” are set out in
paragraphs 78(a) to 78(e) of the Plaint and the Defendants’
response at paragraph 36 of the Defendants’ Limited Affidavit
in Reply had not been dealt with in the Impugned Order.
90. In our view, in paragraphs 54 to 57 of the Order date 25 th
October 2023, the Learned Single Judge has given various reasons for
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granting the mandatory injunction at the ad interim stage. Paragraphs 54 to
57 read as under:
“54. Both of them vehemently argued for granting the relief and
refusing the relief at this stage. Both of them relied upon various
citations. Learned Senior Advocate Mr.Dhond relied upon
following citations :-
(a) Samir Narain Bhojwani V/s. Aurora Properties and
Investments and Another [(2018) 17 Supreme Court Cases 203]
(b) Hammad Ahmed V/s. Abdul Majeed and Others [(2019) 14
Supreme Court Cases 1]
(c) Deoraj V/s. State of Maharashtra and Others [(2004) 4
Supreme Court Cases 697]
(d) Champsey Bhimji & Co. V/s. Jamna Flour Mills Co. Ltd.,
[1914 SCC Online Bom 41]
(e) Baban Narayan Landge v/s. Mahadu Bhikaji Tonchar and
Others [1989 Mh.L.J. 146]
(f) Nandan Pictures Limited V/s. Art Pictures Ltd. [AIR 1956
Cal 428]
55. Whereas, learned Senior Advocate Mr.Andhyarujina relied
upon following judgments :-
(a) Samir Narain Bhojwani V/s. Aurora Properties and
Investments and Another [(2018) 17 Supreme Court Cases 203]
(b) Dorab Cawasji Warden V/s. Coomi Sorab Warden and
Others [(1990) 2 Supreme Court Cases 117]
(c) Deoraj V/s. State of Maharashtra and Others [(2004) 4
Supreme Court Cases 697]
56. If we read observations therein, we may find that in a given
case, Court can certainly grant mandatory injunction at an
interim stage. However, there is a caution, because, prohibitory
injunction is in negative format, whereas, mandatory injunction
is in a positive format. Once the trial is conducted, the Court
has wide scope of scrutinizing the materials. However, at an
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and documents. Both the learned Senior Advocates read over
relevant observations from these judgments. On their conjoint
reading, the principles can be culled out as follows :-
a. Passing of mandatory injunction at an interim stage is
justified only when the circumstances are clear and prima facie
material clearly justifies a finding that a status quo has been
altered by one of the parties to the litigation and interest of
justice demanded that status quo ante by restoring by way of an
interim order.
b. If granting of relief is delayed till disposal of final petition,
nothing would remain to be allowed as a relief.
c. A strong prima facie case higher than normal prima facie
case has to be made out to prevent irreparable injury not
compensable in terms of money along with Balance of
convenience.
d. Power is not to be exercised unless Court feels that high
degree of assurance that at the trial similar injunction would in
all probabilities would be granted. Injunction which is in the
form of equitable relief have to be adjusted in aid of equity and
justice.
So certainly interim mandatory injunction can be granted if the
facts and circumstances justify.
Conclusion
57. For the reasons stated above, I am inclined to grant interim
mandatory injunction. The grant of mandatory injunction is an
equitable relief and it is based on equitable principles. If one of
the litigants by taking shelter of law wants to defeat the
equitable principles, Court cannot shut its eyes. Ultimately, the
background in which the provisions of Section 169 of the
Companies Act are invoked cannot be overlooked. Court cannot
forget the fact that during the pendency of ad interim relief in an
Infringement Suit, the power to remove director was exercised
and the urgency for Defendant No.1 to Defendant No.3 to
exercise that power. I find no urgency. There cannot be any
intention other than intention to defeat the legitimate claim of
exercise of right by Plaintiff No.1. If such an unjustified act will
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wrongdoers can be protected under the guise of law. It is also
true that when Plaintiff No.1 is not a director, Defendant No.1 to
Defendant No.3 will take certain decisions which will be
detrimental to the interest of Plaintiff No.1. So case for interim
mandatory injunction is made out.”
91. We are in respectful agreement with the findings of the Learned
Single Judge. In our view, the Learned Single Judge has considered the
principles for granting mandatory injunction laid down by the Hon’ble
Supreme Court, and, on the basis of these principles, has correctly granted the
mandatory injunction.
APPEALS AGAINST ORDER DATED 10th NOVEMBER 2023
92. As far as the Appeals against the Order dated 10 th November 23
are concerned, by the Order dated 25 th October 2023, the Learned Single
Judge was pleased to pass an ad-interim order directing Defendant Nos.1 to 7
to jointly and severally restore status quo ante in favour of Plaintiff No.1 as it
was existing from 3rd July 2023 after passing of the order in Interim
Application (L) No. 8399 of 2023 in Commercial IP Suit No.177 of 2023. In
an Order dated 10th November 2023 passed pursuant to an application made
for speaking to the minutes of the Order dated 25 th October 2023, the Learned
Single Judge clarified that the status quo was granted in favour of the Plaintiff
No.1 Sunil Shah as a director from 3 rd July 2023. It is the submission of the
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Defendants that such a clarification could not have been granted in an
application for speaking to the minutes of the Order dated 25 th October 2023.
93. We are unable to agree with the same. If the Order dated 25 th
October 2023 is read in its entirety, it is obvious that the Learned Single
Judge was granting restoration of status quo qua Plaintiff No.1 as a director.
As the words “as a director” were missed out in Order dated 25 th October
2023, the Learned Single Judge correctly clarified the same by the Order
dated 10th November 2023 passed in an Application for speaking to the
minutes of the Order dated 25th October 2023.
94. Further, we, as the Appellate Court, also find that, for all the
reasons mentioned in this judgement, Plaintiff No.1 one should be reinstated
as a director with effect from 3rd July 2023. Hence we see no merit in these
Appeals.
95. Since we have come to the conclusion that the ad-interim
mandatory injunction granted by the Learned Single Judge is justified on the
basis that there was in existence a family arrangement and Defendant No.4
was a quasi-partnership, and since these Appeals are from an ad-interim
order, we are not inclined to go into the issues as to whether the removal of
Plaintiff No.1 as a director is contrary to Article 145 of the Articles of
Association of Defendant No.4 and whether Plaintiff No.1 has vacated the
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office of the director by virtue of Article 144G of the Articles of Association of
Defendant No.4. These issues can be gone into by the Learned Single Judge
hearing the Interim Application.
96. We also clarify that our findings on family arrangement and
quasi-partnership are only for the purpose of confirming the ad-interim
order.
97. For all the reasons stated hereinabove, we pass the following
order:
ORDER
a. Appeal (L) Nos. 30581 of 2023, 32111 of 2023 and 33445 of 2023 are
dismissed. In view of the disposal of the above Appeals, nothing
survives in any of the pending Interim Applications therein and the
same are disposed of accordingly.
b. Pending the hearing and final disposal of the Interim Application (L)
No.22820 of 2023, pending before the Learned Single Judge, Plaintiff
No.1 is reinstated as a director of Defendant No.4 from 3 rd July 2023
onwards. Hearing of Interim Application (L) No. 22820 of 2023 is
expedited.
c. In the facts of the case, there will be no order as to costs.
98. This order will be digitally signed by the Private Secretary/
Personal Assistant of this Court. All concerned will act on production by fax
or email of a digitally signed copy of this order.
[FIRDOSH P. POONIWALLA, J.] [B. P. COLABAWALLA, J.]
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99. At this stage, Mr. Andhyarujina, the learned Senior Counsel
appearing on behalf of the Appellants sought a stay of the direction passed by
us reinstating Plaintiff No.1 as a Director of Despondent No.4. This request is
made because the Appellants would like to test the above order before the
Hon’ble Supreme Court.
100. To enable the Appellants to test this order before the Hon’ble
Supreme Court, we order that the direction given in paragraph 97 (b) of the
above order shall not be given effect to for a period of two weeks from today.
This is, however, subject to the fact that Defendant Nos.1 to 4 shall not deal
with any of the immovable properties of Defendant No.4 for the aforesaid
period, and shall also not deal with the bank accounts of Defendant No.4
except in the usual course of business.
101. Mr. Tamboly, the learned counsel appearing inter alia on behalf
of Defendant Nos.1 to 3, as well as Mr. Andhyarujina, the learned Senior
Counsel appearing on behalf of Defendant No.4, have stated that they have
not created any third party right, title or interest in any of the immovable
properties of Defendant No.4, save and except the basement office in 225/227
“Dun Apartments” admeasuring 1500 sq.ft. situated at J. Dadaji Road,
Tardeo, Mumbai-400 007. The said statement is accepted as an undertaking
given to the Court.
102. This order will be digitally signed by the Private Secretary/
Personal Assistant of this Court. All concerned will act on production by fax
or email of a digitally signed copy of this order.
[FIRDOSH P. POONIWALLA, J.] [B. P. COLABAWALLA, J.]
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